Key takeaways
The Federal Budget's negative gearing and CGT changes passed the Senate on 25 June 2026 and now apply to established properties purchased after 12 May 2026, while existing investors are grandfathered under the old rules
The likely market outcome is a stalemate rather than a crash, with grandfathered owners holding on and new buyers proceeding more cautiously, leading to fewer transactions rather than sharply lower prices
A locked up market has wide reaching consequences, hitting real estate related industries, labour mobility, price discovery and new housing supply as developers grow more cautious
Consumer and investor sentiment is likely to weaken further as uncertainty continues, even before any real shift in underlying property values
History from Australia in the 1980s and New Zealand more recently shows these kinds of tax reforms often prove politically fragile and get wound back once the political cost outweighs the benefit
The sensible response is to avoid knee jerk decisions, steer clear of poor substitutes like off the plan property, and stay focused on investment grade assets that will perform over the long term
Something strange is happening in property circles right now, and it has nothing to do with interest rates or auction clearance rates.
It's a kind of paralysis. Buyers are hesitating, sellers are holding back, and investors who would normally be active are sitting on their hands, waiting to see what happens next.
The cause is low confidence, largely driven by the Federal Budget's changes to negative gearing and capital gains tax, which passed the Senate on 25 June and are now locked in as law.
While the headlines have focused on winners and losers, I think the bigger story is what this does to the market's overall health.
The numbers behind the hesitation
From 1 July 2027, investors who buy an established property will no longer be able to offset rental losses against their salary or other income. That benefit is quarantined and will be deferred for use against future rental income or capital gains from residential property.
Existing investors are grandfathered, so if you already own property or had a property under contract before budget night, you retain the old rules.
But anyone buying established property from here faces a genuinely different equation, and these changes will also affect their borrowing capacity going forward.
Now, don't get me wrong… I still believe established residential real estate will make an excellent long-term investment if you buy the right property in the right location. But today, strategy is more important than ever and getting your sums right will be critical.
Why this locks the market up rather than crashing it
Here is where I think it gets interesting: the likely outcome is not a property market crash, as some property pessimists predict, but rather I believe we're going to have a period of flatter property growth overall until the market equilibrates (as it always does), particularly until interest rates go down.
I guess we'll have something closer to a stalemate.
Existing investors who are grandfathered under the old rules have every incentive to hold onto their properties rather than sell, because selling would mean giving up a valuable tax position they cannot recover.
Buyers, meanwhile, are more cautious than they were, because they will need to do the maths carefully on any new purchase.
Discretionary home sellers are also delaying, because in an uncertain environment most people avoid big financial decisions when they can put them off.
Similarly, discretionary home buyers are holding back at the moment, and as a result, fewer transactions are moving through the system, even if prices themselves don't move dramatically in either direction.
I have seen this pattern before in my decades in this market. Uncertainty doesn't usually send prices crashing; it just causes people to stop transacting, and that has consequences of its own.
The knock-on effects most people aren't talking about
A property market with fewer transactions isn't just an inconvenience for buyers and sellers. It ripples through a large part of our economy.
Conveyancers, mortgage brokers, real estate agents and removalists all rely on transaction volumes to make a living, and a locked up market hits their income directly.
Labour mobility suffers too, because people become less willing to sell up and move for a new job or to be closer to family when the cost and hassle of transacting feels too high.
Price discovery becomes harder as well. When fewer properties are changing hands, valuers and buyers have less genuine market evidence to work from, making it harder for everyone, including banks conducting their lending assessments, to determine what anything is really worth.
Developers are watching all of this closely too. If the established market appears weak and inactive, they become far more cautious about committing capital to new projects, which is the last thing we need given how far behind we already are on housing supply.
Why this hits consumer sentiment harder than the policy itself
I think the real damage here isn't really about the tax change in isolation, it's about what it does to confidence more broadly.
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When people don't understand a rule change, or when it keeps shifting as it has with testamentary trusts and the SMSF borrowing ban, they tend to freeze rather than adapt.
We are already seeing early signs of that caution flowing through to consumer sentiment surveys, and I expect this to show up in weaker discretionary spending and softer confidence readings over the months ahead.
Property has always been closely tied to how Australians feel about their own financial position, given how much household wealth is tied up in it, and a locked up market makes people feel poorer even before their equity actually changes.
That psychological effect matters just as much as the technical tax mechanics, because ultimately it's investor and homeowner behaviour that drives what happens next in this market, not the policy documents sitting in Canberra.
Why history suggests this won't be permanent
This is where I want to bring some historical perspective to the conversation, because we have actually been here before.
The Hawke and Keating government quarantined negative gearing in July 1985 and reinstated it in September 1987, after sustained pressure from housing, construction and landlord groups following the 1987 election.
It wasn't a housing supply crisis or a surge in rents that forced that reversal; it was politics. The policy became too unpopular to defend, and a government that needed to manage that pressure eventually gave ground.
New Zealand experienced something similar more recently. Interest deductibility for investors was removed in October 2021 and reinstated between April 2024 and April 2025, following an election that changed the political calculus.
I think there's a real chance we'll see a similar pattern play out here.
Roughly two out of three Australians are homeowners, and once people own property, their incentives shift quickly from seeking affordability to wanting their asset to grow in value.
Government revenue is also closely tied to rising property values through stamp duty, land tax and capital gains tax, so a genuinely flat or falling market creates its own fiscal headaches for whoever is in Canberra.
It's also worth remembering that Labor took similar negative gearing changes to the 2016 and 2019 elections and lost both times, so it's hard to argue there has ever been a clear mandate for this kind of reform.
None of this means a reversal is guaranteed or imminent, but the political fragility of these policies over time is a pattern worth watching closely.
What this means for your strategy
I wouldn't recommend reacting to any of this by chasing the obvious alternatives either.
Off the plan apartments and house and land packages remain, in my view, poor substitutes for investment grade established property, and commercial property valuations already look stretched in many segments.
The smarter approach is to avoid knee jerk decisions and focus on quality assets that will perform well over the long term regardless of which way this particular policy debate eventually lands.
If you already hold investment grade property, your grandfathered position is valuable and worth protecting rather than disturbing.
If you're weighing up a new purchase, the underlying quality of the asset still has to stand on its own merits, tax treatment aside, because that's what will carry you through the decades ahead regardless of what happens in Canberra.
If you're wondering how any of this actually applies to your own portfolio, that's exactly the kind of conversation worth having properly rather than trying to figure out on your own. Every investor's situation is different, and whether you should be protecting a grandfathered position, reconsidering a purchase you had planned, or exploring an entirely different strategy depends on your income, your existing assets and what you're actually trying to achieve over the next decade or two.
That's what a Wealth Discovery Session with one of our strategists at Metropole is for. It costs you nothing but a bit of time, and you'll walk away with real clarity on where you stand and what your next move should be, regardless of how the tax rules eventually shake out. Click here now to book a time.
