How will tax changes affect property investors?

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Tax Reforms Set to Significantly Alter Australia's Property Investment Landscape

Australia's upcoming tax reforms, set to take effect from July 2027, will introduce substantial changes to capital gains tax (CGT) and negative gearing, fundamentally reshaping the property investment environment. The centre-left Labor government plans to abolish the CGT discount and prohibit negative gearing on existing housing, moves that are expected to lead to property price declines and a strategic shift for many investors. Property investors are bracing for potential price drops of up to 10 per cent, a significant concern given that approximately 70 per cent of Australian household wealth is tied to home values.
Reduced Investor Activity and Shifting Strategies

The announcement of these tax changes has already had a noticeable impact on the property market, with fewer investors participating in auctions. Auctioneer Clarence White has observed a reduction in investor bidding activity since the reforms were unveiled. This has led some investors, like Kellie Adamson, to reconsider their purchasing strategies, with a growing inclination to look beyond major cities like Sydney and even explore commercial property investments. For investors with less established portfolios, the impact is expected to be more pronounced, potentially affecting their ability to grow their holdings.
Impact on "Rentvestors" and Portfolio Growth

The reforms are particularly significant for "rentvestors," individuals who purchase property as an investment while renting themselves. An estimated 6,500 rentvestors enter the Australian property market annually, and their strategy often relied on negative gearing to facilitate property acquisition. With the prohibition of negative gearing on existing housing, this approach becomes less viable. Consequently, younger investors like AJ Clores, who manages a A$3.2 million portfolio, anticipate a pause in their expansion plans, likely deferring new purchases until around 2028.
Forecasted Price Declines and Market Correction

Economists are forecasting a notable downturn in property prices, with expectations of a 5 per cent to 10 per cent drop in the coming year, exacerbated by collapsing auction rates and recent interest rate hikes. SQM Research predicts that Sydney's property prices could fall by as much as 9 per cent in 2026, while Melbourne is expected to see a decline of up to 7 per cent. This projected downturn is anticipated to be deep and prolonged, potentially extending into 2027, signalling a substantial market correction.
Potential Benefits for First-Home Buyers

While the reforms present challenges for investors, they may offer opportunities for first-home buyers. Reduced competition from investors, who have historically been significant players in the market, could make it easier for owner-occupiers to secure properties. Devin Familton, a Melbourne resident searching for his first home, believes that fewer investors bidding on properties will improve the chances for individuals looking to enter the market for the first time.

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