Key takeaways
The Federal Budget introduces major changes to capital gains tax and negative gearing, which could discourage many property investors and place more pressure on the middle class.
Established properties bought after July 2027 will no longer qualify for negative gearing, likely pushing investors towards new developments and government-backed housing.
Brisbane, Perth and Adelaide appear close to the peak of their growth cycle after strong gains, while Melbourne and Sydney apartments may now offer better long-term value and upside.
Property prices may soften slightly in the short term as buyers and investors adjust to the new rules, but strong population growth and limited housing supply should support long-term demand.
Investors should focus on owning quality investment-grade assets with strong growth potential rather than relying on tax benefits, because tax rules can always change.
Welcome to the inaugural episode of Market Room Live, where I delve into the complexities of the property market and the recent bombshell federal budget's impact.
This discussion, featuring insights into current trends and future predictions, is essential for anyone interested in navigating the evolving landscape of real estate investment in Australia.
Understanding the Federal Budget's Impact
Our discussion opens by highlighting the significant changes introduced by the recent federal budget.
You'll see I express concerns about the implications for the middle class, suggesting that the budget could widen the gap between the rich and the poor.
As I see it, this budget represents a challenge for the aspirational middle class, who are often the backbone of economic growth and stability.
Key Budget Changes
- Capital Gains Tax Adjustments: Starting from July 1, 2027, the existing 50% discount on capital gains tax will be replaced with a cost-based indexation system.
This means that investors will only pay tax on profits above the inflation rate since the purchase of the property.
While this is not a complete overhaul, it introduces a new layer of complexity that could deter potential investors. - New Tax Rates for Discretionary Trusts: A new tax rate of 30% for discretionary trusts will come into effect on July 1, 2028.
This change is particularly relevant for those looking to structure their investments through trusts, although the implications are still being assessed. - Negative Gearing Changes: Perhaps the most significant change is the adjustment to negative gearing rules. Properties purchased before the budget announcement can still claim negative gearing, but from July 1, 2027, established properties will lose this benefit.
New builds and government housing will still be eligible for negative gearing, which may shift investor interest towards these options.
Market Predictions and Current Trends
In this week's market room I provided a candid assessment of the current property market conditions, identifying Brisbane, Perth, and Adelaide, along with regional markets, nearing the peak of their growth cycles.
These markets have seen substantial growth: over 100% in the last five to six years, indicating that future increases might be unsustainable.
The next few months may see a pause in market activity as investors and buyers assess the new landscape shaped by the budget changes.
With a market reset on the cards, investors will be drawn towards areas that offer a greater level of safety and offer better value for money.
Markets like Melbourne and apartments in Sydney offering both of these features and have greater upside moving forward.
Interest Rates and Economic Implications
Interest rates are another critical factor influencing the property market.
- Also read:National Vacancy Rate Rises to 1.2%| SQM Research
- Also read:Interest Rates Rise Again and Auction Markets Pull Back – What It Really Means for Property | Property Insiders
- Also read:This week’s Australian Property Market Update – Latest Data, State by State May 12th 2026
- Also read:Latest Property Price Forecasts Revealed. Australian Property Market Outlook 2026: Where To Now After The Rate Rise.
- Also read:Everything you need to know about the state of Australia’s property markets in 20 charts – May 2026
With mixed signals from major banks regarding future rate changes, there is a palpable sense of uncertainty.
The Reserve Bank may pause interest rate adjustments in the short term to gauge the effects of the new budget on the market.
Short-Term Price Predictions
The Grattan Institute has projected a short-term property price drop of 1% to 4% as market participants reevaluate their positions.
However, this should be seen as a temporary pause rather than a long-term decline, particularly given Australia’s ongoing population growth and housing supply challenges.
The Rental Market: A Growing Concern
If investors focus on new builds in outer suburbs, there may be insufficient housing supply for tenants in established middle-ring suburbs.
Rents will continue to rise, driven by sustained demand and limited supply.
This trend could exacerbate affordability issues for many renters.
Conclusion: A Call to Action for Investors
In conclusion, my insights underscore a critical moment for property investors in Australia.
With significant changes to tax policy and ongoing economic uncertainty, it is essential for investors to stay informed and adaptable.
Understanding these dynamics will be crucial for making informed decisions in the evolving property landscape and maximising outcomes.
Investors should never build a property strategy around a tax deduction, but rather built around high-quality assets with a growth focus.
Note: Stay tuned for future episodes where I will continue to explore these topics, bringing in the wise heads of Michael Yardney and Ken Raiss to provide further insights and guidance on navigating the property market successfully.
