The 2026 Budget Has Changed Property Investing: Here's how it will all play out

Now that the dust is starting to settle on this year’s Budget announcement, we sat down with Dave, the Managing Director of Property Planning Australia to talk through what happens next.

Here's a high-level view of how we think the Budget's flow-on effects, on wealth creation, rents, prices and long-term financial behaviour, will play out:

• Prices will fall initially, as they already have. This is likely to prove the best time to buy.

• Rental stock, already at historic lows, will become even scarcer. This is where the political backlash will likely hit hardest, and it's one of the key reasons we expect these rules to be amended or overturned within the next two to five years, but you cannot rely on this to happen as part of your Property Planning strategy.

• Rental yields will rise to levels not seen in 20, 30 or even 40 years, with capital city yields moving back into the 4–6% range. This is the market's natural adjustment mechanism, offsetting weaker capital growth and will result in returns for investors similar to current returns.

• Smart money will keep targeting quality established property. With fewer of those assets coming to market, established property price growth should stay well supported once the market finds its new level.

• More investors and many first home buyers will buy new property because the tax rules and government incentives encourage it, but many will end up underwater once that property is no longer “new”, and these incentives will push up the initial purchase price and resale values will take a greater hit than already occurs when previously new property sells for the second time and competes with future new and already established.

• The next interest rate cut, some predict as early as next year, will likely kick off the next growth run for property, and if the negative gearing tax changes for established property get repealed at some time, we will see the mother of all property runs.

• The bigger risk is stagflation and the broader negative economy-wide impacts from falling property prices and the second order impacts as home owners feel poorer from falling household wealth, spend less and invest less into businesses in conjunction with already: high inflation, a rising cost of living, elevated interest rates already compounded by weak productivity and living standards that have already been falling per capita for years and relative to our predecessors and other comparable OECD nations.

Once these reforms take effect, we expect investors to hold quality established property for longer. New buyers of established property won't be able to offset rental losses against personal income each year; instead, those losses carry forward until the property turns cash-flow positive, or until they can be used against a future capital gain. That shifts the incentive from buying, holding and selling when it suits, to holding longer to use up those accumulated losses. Existing investors with grandfathered negative gearing face the same incentive, since selling means giving up a tax position new buyers won't have.

The result: fewer quality established homes on the market, some investors stepping back altogether, and tighter rental supply pushing rents higher. Longer term, if Treasury's estimate of 2% lower annual growth proves accurate, these reforms could wipe literally trillions from Australia's future household wealth (today's Australian residential property market is worth $12.5 trillion), affecting everyone’s ability to spend in the economy and grow businesses which is what allows us to grow the pie and receive tax to fund our governments and public services and workers. This impacts homeowners, retirees, business owners, consumers and the broader economy.

Key Takeaways: Opportunities and Risks

This broader economic fallout will creep up over months. Some will put falling living standards and productivity down to the Iranian War or already-high inflation, but we believe a significant part of the story will be wealth lost through our largest asset class.

1. The real issue isn't tax incentives, it is housing supply

The biggest constraints on supply in Australia are excessive red tape, planning delays, infrastructure bottlenecks, labour shortages and costs, material costs, and the taxes and charges attached to building new housing. Together, they mean fewer new homes get built.

Yet instead of tackling those structural supply issues, governments have again reached for demand-side policies, such as cash, waivers and cost savings for first-time buyers, that boost demand and push up prices while taxing property investors more heavily.

2. The tax benefit is delayed, not lost

Many people assume negative gearing benefits on established property disappear altogether under these reforms. That's not correct.

Those losses can be carried forward and offset against future rental income, or against capital gains tax when the property is eventually sold. The tax benefit arrives later, not never.

This is where the changes are likely to shift investor behaviour. If the benefit is delayed, the incentive moves toward holding quality established property for longer. Investors will be far less likely to sell until they've had the chance to recover or use those accumulated losses.

3. The loophole for existing homeowners

There's a grandfathering provision in the new legislation that most homeowners haven't fully clocked yet. If you already own a home which was purchased before 12 May 2026, you can still negatively gear it if you later convert it into an investment property, regardless of whether it's been owner-occupied or on the rental market since.

That opens the door to strategies like upgrading to a new family home and retaining the current one as a rental, or rent-vesting, while preserving a grandfathered tax position that won't be available to anyone buying an established property from now on.

The loan structure matters here too. Paying down principal now permanently reduces the deductible debt available if the property later becomes an investment, so anyone for whom conversion is even a possibility should think carefully about their repayment structure before locking in extra repayments. We've broken down the mortgage strategy side of this in detail in a separate article.

4. Grandfathering will reduce the supply of quality established property

Another issue is grandfathering. Ironically, grandfathering negative gearing will reduce the supply of quality established investment stock over time, because existing owners are incentivised to hold rather than sell, though some will still sell before CGT rates increase from 1 July 2027.

At the same time, future investors who buy established property are also incentivised to hold for longer, since they may want to use accumulated losses against future rental income or capital gains tax.

In other words, both existing and future investors are pushed toward the same behaviour: hold the asset for longer. And when more people hold for longer, fewer quality established properties come onto the market. That's a supply issue.

This trend was already underway before these reforms. Cotality data reported in 2019 showed the national average ownership period had risen to 11.3 years for houses and 9.6 years for units, up 3.8 years and 2.9 years respectively over the previous decade.

5. Rents are going to rise faster, and stay higher

We believe rents will rise faster. They're already climbing nationally at 5.9% per year.

Many investors are likely to steer clear of established residential property in the near term, given the headlines, confusion and uncertainty around the negative gearing changes. If fewer investors buy established property while population growth and rental demand stay strong, rental supply gets even tighter, and that means more pain for renters.

For investors who can afford to buy and hold quality assets, though, it means stronger rental growth and higher yields over time. This is one of the outcomes we think is being underestimated, with yields becoming consistently in the 4–6% range and moving closer to commercial property returns.

The policy may be aimed at investors, but the pressure will be felt by renters.

6. Quality established property should continue to outperform

We believe quality established investment-grade property will keep outperforming over the long term.

Why? Roughly two-thirds of buyers in Australia are owner-occupiers, not investors. If these policies reduce investor participation and increase the share of owner-occupiers, that creates even more competition from buyers who mostly want established homes.

People ultimately want quality homes in quality locations: close to jobs, schools, transport, lifestyle amenity and established communities. Many of those homes are established properties.

So while the proposed changes may shift investor behaviour, they don't change the fundamentals of why quality established property performs, and the tax rules remain very strong for homeowners, with no capital gains tax payable on the family home.

Further, the policies are intended to increase the percentage of home owners, so the expectation is that 70% or 75% of those who own property will be home owners who do not have the same incentive to purchase new.

7. The family home becomes an even more important part of the strategy

We believe more money is likely to flow into the family home, because it remains one of the most tax-effective assets in Australia. It's a view we've always held, and these reforms only strengthen it.

The family home is already a major part of long-term wealth creation. It's why our Property Planning and Mortgage Strategy process places such a heavy focus on it as the foundation asset.

For most Australians, the family home isn't just where they live: it's the core asset underpinning their broader financial position, future borrowing capacity and long-term wealth strategy. That's because most Australians only own one property: the home. That was already important. In a post-Budget world, it becomes even more important.

8. New properties still carry risk

We still believe many new properties are high risk from an investment perspective.

Why? They often come with a lower land-to-asset ratio, meaning more of the purchase price is tied up in the building rather than the land. That matters, because buildings depreciate while well-located land usually drives long-term capital growth.

New properties can also experience rapid early-stage depreciation. Think of it like a new car or appliance, where the biggest drop in value happens once it's no longer “new.” There's also oversupply risk in areas where a lot of similar new stock is being built at the same time.

And when you eventually sell, you may be competing against either brand-new stock with fresh incentives, or quality established property in better locations. That's why new property isn't automatically the safer option just because the tax rules may favour it.

Only bespoke new property in superior, non-replicable locations with a reasonable land-to-asset ratio is likely to deliver the kind of returns investors are after, once you factor in that any future sale moves it into the established market.

9. Commercial property will attract more attention

More investors will look more seriously at commercial property. This is already happening.

But there are limits. There are only so many quality commercial assets available, they're often more expensive, and they carry different risks around entry price, vacancy, lease terms, tenant quality and lending.

Residential property still has one major advantage: everyone needs a roof over their head, which is why prices fluctuate less and lenders are willing to lend more against it. As residential prices stagnate in the short term while rents keep rising, residential yields may start to look more attractive again relative to commercial property, bringing investor attention back to quality residential property, especially for those who can manage the cash flow and hold for the long term.

10. Investors will build smaller portfolios

We expect the average number of residential properties people own to fall well below historical levels, simply because the tax benefits of holding multiple properties have been reduced.

11. Why now could be a buying opportunity

So when is the right time to buy? We believe the period before 1 July 2027, or the next interest rate cut, will present a major opportunity for strategic long-term investors.

History shows that fear and uncertainty often create the best buying opportunities. We saw it during COVID, 2018 when the Banking Royal Commission was on and Bill Shorten was looking a certainty to win the election and had announced he would ban negative gearing, and during the GFC in 2008. When panic hits, buyers freeze, investor confidence falls and the herd sits on its hands. That reduces competition and creates room to buy quality assets below their intrinsic value.

We expect the same dynamic here. Some retirees and investors may rush to sell before the proposed minimum 30% capital gains tax changes begin, while many buyers delay decisions because they're uncertain about the new rules. That combination should suppress prices in the short term.

For investors with strong cash flow, a clear property plan and the right mortgage strategy, this creates a rare window to buy quality established property while others hesitate.

12. The bigger issue: long-term impact on our economy

Beyond rising rents for renters, we still believe the biggest long-term issue is the impact on Australian wealth creation. We broke down the numbers behind this in our original Budget article: if Treasury's estimate of 2% lower annual growth plays out, it could mean roughly $30 trillion less household wealth created over the next 30 years.

That's not just an investor problem. It flows through to the broader economy: Australians retiring later, weaker spending and business investment, and a lower standard of living over time. In plain English: your money doesn't stretch as far.

Australia has already recorded one of the steepest declines in living standards across the developed world since the pandemic, with real wages falling 5.1% since March 2021 according to the OECD. The contrast with other developed nations is stark. While Australians have gone backwards, the average OECD member country has seen living standards improve by 5% over the same period.

13. Tax policy can change, but you can't invest on hope

Similar policies overseas, and historically in Australia, have often later been softened, amended or reversed.

Australia restricted negative gearing under Paul Keating in 1985, before reversing course in 1987. New Zealand also limited interest deductibility for residential property investors in 2022, only to mostly unwind those changes around three years later in 2025.

But you can't invest based on hope that governments will change policy. You have to assume the rules stay. If they are repealed, expect a flurry of price growth as soon as that happens.

14. What does a successful investor look like now?

Successful investors going forward will need:

• Stronger cash flow management, supported by purpose-built cash flow tools that model the impact of your next purchase

• A better mortgage strategy to optimise and preserve tax deductions

• Smarter risk management around your mortgage

• A sharper focus on holding quality assets for the long term: less speculation, more certainty about what you buy

• A clear plan for your future family home

This is what we focus on, and have for a long time, at Property Planning Australia. Great mortgage strategy and property planning become even more important, backed by cash flow tools available at no cost for clients considering their next property purchase.

With established property losing its upfront tax benefits, the game increasingly favours investors who can afford to hold quality assets through multiple property cycles. The reward shifts from short-term tax relief to long-term staying power, where accumulated losses can eventually be used against future taxable rental income or capital gains.

In summary

We expect many investors and first home buyers to sit on the sidelines while the market digests these reforms. Even upgraders will but now is a great time for them to transact. Prices have already flattened or fallen, particularly in markets that ran hard over the past three to five years. Rents will keep rising and yields will improve.

Eventually the numbers will make sense again: a floor forms, potentially 5–10% below current levels in many markets, buyers return once the dust settles, and returns improve on the back of higher yields and falling interest rates.

That's why we think this period offers one of the best windows to buy quality established property. It remains a strong asset for the same reasons it always has: land value, scarcity, location and owner-occupier appeal.

Only unique new property, supported by negative gearing, is likely to perform well. Mass-produced medium-to-high-density stock, or new builds in greenfield areas with plenty of nearby land supply, are likely to underperform for the initial buyer: values fall faster, and the secondary market is weaker compared with newer, mass-produced equivalents nearby.

As always, investors will need patience, strong cash flow and a long-term plan. If these tax laws are eventually repealed, in two, four or six years, the market will get a significant boost. And if Australians come under real economic pressure, there's a good chance a future government focused on business, productivity, jobs and growth will unwind policies holding investment back.

But if the laws stay, capital growth may remain weaker for longer, reducing household wealth and dragging on the broader economy, since Australians often borrow against the family home to invest, start businesses and build long-term financial security.

For the property investor, less people will amass large portfolios, net returns will be similar because increased rental yield will offset the capital growth reduction.

Quality established property will remain the jewel in the crown for investors and home owners alike, with some very special and unique new property also proving to provide great returns, but they will be much harder to find.

Disclaimer - General information only. This blog is based on Budget announcements as currently released and is not financial, tax or legal advice. Final legislation may differ from the proposals outlined here. Please seek licensed credit and tax advice before acting on any of the information in this article.