Key takeaways
The Federal Government has abolished negative gearing for investment properties purchased after May 12, 2026, meaning investors can no longer offset rental losses against other income.
The 50% capital gains tax discount has also been scrapped, replaced by a 30% minimum tax on inflation-adjusted gains, applying to properties held after July 1, 2027.
New dwellings are exempt from both changes, which the government says is designed to encourage apartment construction and support first home buyers.
Total home loans fell 6.2% over the March quarter on a seasonally adjusted basis, though the annual picture tells a different story, with investor lending up 18.8% over the full year.
Auction numbers fell sharply across the capitals this week in the aftermath of the Budget, though clearance rates held reasonably steady, with Sydney at 61.4%, Melbourne at 62.1%, and Adelaide at 61.7%.
The structural undersupply of housing across Australia has not changed. Tax settings change. Fundamentals don't.
Something happened over the last week that I've genuinely never seen in my five decades of property investing - the Federal Government reached into the pockets of every property investor in Australia and changed the rules of the game overnight.
Negative gearing for new purchases, gone. The 50% capital gains tax discount, gone.
Two of the most fundamental tax structures underpinning Australian property investment were dismantled in a single Budget announcement on May 12.
And I want to be very clear - this is not just noise. This is a structural shift that every investor in this country needs to understand properly before making any decision about buying, holding, or selling property.
Now I could just react to the headlines, but that's not what we do here. Every week on Property Insiders, I sit down with Dr Andrew Wilson, and we go behind the headlines to look at what the data is actually telling us, so you can make smarter decisions.
This week, we break down exactly what these Budget tax changes mean for you as an investor, including some exemptions that are worth knowing about.
We're also look at the latest home lending data from the March quarter, because buried inside those numbers is a story about investor confidence that most commentators have completely missed.
And we'll cover the latest auction results from across the capital cities, where clearance rates are now being squeezed from two directions at once.
The Budget just rewrote the rules for property investors
Watch this week’s Property Insider chat as Dr Andrew Wilson and I explain how the media coverage of last week's budget has been a mix of accurate reporting and fairly breathless reaction that doesn't always distinguish between what's happened and what it might mean.
The government has abolished negative gearing for investment properties purchased after May 12, 2026. That means if you already own an investment property, nothing changes for you. But if you're buying something new from this point forward, you can no longer offset a rental loss against your other income.
On top of that, the 50% capital gains tax discount has been replaced by a 30% minimum tax on inflation-adjusted gains, applying to properties held after July 1, 2027.
Those are two genuinely large structural changes to how property investment is taxed in this country.
There is, however, one very important exemption - new dwellings are exempt from both sets of changes.
The government has been explicit that this is designed to encourage apartment construction and give developers confidence to build, while also helping first home buyers who will be supported through a policy the government says will generate an additional 7,500 new FHBs per year.
So the policy is trying to do several things at once - redirect investor appetite toward new construction, make existing established properties less attractive to purely tax-motivated investors, and free up more stock for owner-occupiers and first home buyers.
Whether it actually achieves all of that is a separate question, as Andrew and I discuss.
What this means for investors who already own property
If you own established investment properties, your existing portfolio is not affected by these changes. Negative gearing continues to apply on properties you already hold, and the transition arrangements on the CGT changes give you time to consider your position before the new rules apply from July 2027.
What does change is the marginal tax benefit of acquiring another established investment property going forward.
For high-income investors who were relying on rental losses to significantly offset their tax, that part of the equation has changed.
But here's the thing. I've never built my investment philosophy around the tax tail wagging the property dog. I've always said that the best investments are the ones that make sense on their own merits - the right location, the right asset, the right long-term demand story.
Tax benefits are a nice supplement. They shouldn't be the primary reason you buy. If they were, that tells you something about the underlying quality of the investment.
Will this actually solve Australia's housing crisis?
As you watch this week’s show, you will hear that both Andrew Wilson and I are sceptical of the idea that removing negative gearing from established properties will materially improve housing affordability for first home buyers.
The historical record on this is not compelling, and more importantly, the affordability problem in Australia is a supply problem, not a tax problem.
And the evidence that more generous tax treatment for new dwellings will unlock significant new apartment supply in the current environment is limited.
Developers are still dealing with high construction costs, rising interest rates, and the financial viability challenges that have shelved many new projects.
The exemption for new dwellings is well-intentioned, but a tax incentive for buyers doesn't automatically fix the economics of building.
Dr Wilson and I discussed this at length, and his view is that the auction market reaction this week - sharply lower volumes and clearance rates holding near their lowest levels for the year - reflects a market absorbing genuine uncertainty about what these changes mean for values going forward.
- Also read:National Weekly Auction Report – May 16th 2026 | Auction Numbers Fall and Clearance Rates Steady but Low Following Budget
- Also read:National Vacancy Rate Rises to 1.2%| SQM Research
- 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
Markets don't always respond to policy rationally in the short term, and that's worth keeping in mind.
Home lending: the quarterly dip hides a stronger annual story
Watch this week’s Property Insider chat as we discuss how the ABS data for the March quarter showed total home loans fell 6.2% on a seasonally adjusted basis, with owner-occupiers down 6.9%, first home buyers down 4.3%, and investor loans down 3.3%.
While those quarterly falls sound significant, over the full year, total home loans were actually higher by 8.6%.
And investor lending was up 18.8% over the year, comfortably the strongest growth segment of the three categories tracked.
This tells us that despite all the noise around interest rates and affordability concerns, serious property investors have been actively acquiring over the past 12 months at a rate well above the market average.
The March quarter shows 82,453 owner-occupier loans, 57,342 investor loans, and 30,241 first home buyer loans on a seasonally adjusted basis.
The quarterly softening is consistent with the impact of three consecutive monthly RBA rate rises, which have made buyers across all categories more cautious about committing at these prices and with these borrowing costs.
What's interesting to me is that investors actually held up better than owner-occupiers and first home buyers over the quarter, despite the impending Budget uncertainty.
That resilience suggests that experienced investors were less rattled by short-term noise than the broader market.
Auction clearance rates: reading the numbers carefully
Auction numbers fell sharply across the capitals this past week, reflecting a post-Budget hangover as buyers and sellers pause to work out what the changes mean for them, but auction clearance rates held up.
The market is cooler than a year ago, buyer confidence has been knocked around, and that combination often creates conditions in which well-located, quality properties start to represent better value than they did when sentiment was running hot.
What this really means for property investors
I think the most important thing I can offer you this week is some perspective on the difference between a policy change and a structural shift in the housing market.
What changed this week is the tax treatment of new property purchases.
What didn't change is Australia's fundamental housing supply deficit, the ongoing pressure from population growth, the difficulty of building new dwellings quickly and cheaply, or the long-term demand for well-located residential property.
Over the years I've seen dozens of policy changes that were going to "fix" housing or "kill" investment and the market absorbed most of them and moved on.
That's not to be dismissive of the changes. Investors who were relying on negative gearing as the centrepiece of their strategy will need to rethink their approach.
But investors who were buying well-located, investment-grade assets for long-term capital growth were never primarily in it for the tax advantages anyway.
The new dwellings exemption does create an interesting opportunity worth examining seriously, particularly for investors who were already considering new apartments in well-located urban markets.
The combination of no negative gearing restrictions, no CGT discount change, and potentially government-supported demand from first home buyers could make certain new apartment projects more attractive than they've been for some time – but still avoid the high-rise towers and new house and land packages in the outer suburbs.
I believe the market will take time to reprice. There will be uncertainty. There will be sellers who decide now is the time to exit, and there will be buyers sitting on their hands until the dust settles.
In my experience, the dust always settles.
And the investors who use periods like this to research carefully, get their financing sorted, and understand which assets are genuinely undervalued relative to their long-term fundamentals tend to be the ones who look back and say they made their best purchases when no one else was confident enough to act.
This is a market that requires strategy, selectivity, and a clear head. It always has been.
