Australia’s property tax system has been overhauled in this year’s Federal Budget, framed around affordability and intergenerational wealth equality.
Incentives for investors have been cut back with changes to the capital gains tax discount and negative gearing. It comes at the same time listings are rising, buyers are becoming more selective, and price growth is moderating.
The focus is on planning reform, and productivity should make it easier to build new homes; however, there is a risk that new tax reforms will reduce investor interest before enough housing is delivered.
LJ Hooker, Australia’s most iconic real estate network, believes an emphasis on faster approvals and reducing regulatory barriers is critical as supply remains an ongoing issue in the nation’s housing challenge.
What changes were made in the Federal Budget?
The key measures for the property market include tightening negative gearing and capital gains tax (CGT) for investors to tackle housing affordability.
What is capital gains tax?
Capital gains tax (CGT) is added to your income tax when you profit from selling an asset, such as an investment property or shares. Currently, if an investment property is held for 12-months, the owner generally receives a 50 per cent discount on capital gains tax when they sell.
What has changed for capital gains tax?
From 1 July 2027, the 50 per cent discount will be replaced with an inflation indexation system and a new minimum 30 per cent tax on real net capital gains. This is not just restricted to property but also applies to other assets such as shares, EFTs, cryptocurrencies and collectibles.
What is negative gearing?
Currently, investors can generally offset rental property losses against their wages or other income. It is attractive to mum and dad investors as it has allowed them to lower the out-of-pocket expenses in the short term, while generating wealth through capital growth in the long term.
What has changed for negative gearing?
As of Budget night, investors buying established residential properties will not be able to offset losses against wages from 1 July 2027. Those losses can instead only be used against future rental income or future capital gains from residential property. Existing investors and properties purchased before Budget night will continue under the current rules until sold. Newly built homes will remain exempt from the changes to encourage more housing construction.
Mathew Tiller, Head of Research has put together a fact sheet that includes worked examples to help explain how the rules may apply in different scenarios (including existing investors, new purchases after the start date, and new builds).
What does this mean for the property market?
LJ Hooker’s Head of Research, Mathew Tiller, said policies for improving affordability by making it quicker, easier and cheaper to build homes, are a positive from this year’s budget. However, any future benefits could be impacted by changes to negative gearing and capital gains tax.
“The budget lands at a time when listings are rising, buyers are becoming more selective, and price growth is moderating,” Mr Tiller said.
“It also marks the biggest change to property-related tax policy in a generation. It also matters because the market is already being pulled in two different directions, with softer conditions than a year ago and reduced borrowing due to higher interest rates.
“The evidence suggests tax reforms are unlikely to deliver a significant reduction in house prices - the bigger impact is likely to be on investor confidence and future investor activity. We are not saying housing tax settings should never change, but timing matters given Australia remains undersupplied, and vacancy rates are already tight.”
What will happen with rents?
Private ‘mum and dad’ investors still provide most of the rental housing across Australia, so any reduction in investor activity could also place additional pressure on rental markets.
Investors may redirect capital into other asset classes if residential property becomes less attractive. Mr Tiller said this means governments and institutional providers will need to play a much larger role in delivering rental housing.
Did the Federal Budget include any other housing benefits?
LJ Hooker welcomed the Federal Government’s infrastructure funding commitments, which are critical for supporting new housing growth corridors and transport connectivity.
This includes $2.0 billion over four years from 2026-2027 to expedite housing enabling infrastructure, contingent on state reforms. This is a practical outcome for servicing, roads and connection to get land ready to build.
Another $26.4m over four years from 2026-2027 to develop bioregional plans and a strategic assessment to fast-track environmental approvals in priority areas, including housing.
Planning reform is one of the highest leveraged supply measures, with $120m set aside in the budget to encourage States to cut planning red tape. Mr Tiler said the benefit will depend on execution by the State Government and community acceptance.
The budget also includes $54m to accelerate prefabricated and modular housing, which could potentially shorten build times and improve costs if scaled effectively.
A $70.9m boost to Indigenous Business Australia’s Home Loan Fund will provide targeted support to and lift property ownership for First Nations households.
“Additional support for skills and training, such as the construction apprentice scheme, is also welcome, given labour shortages remain one of the biggest constraints facing residential construction,” Mr Tiller said.
“Ultimately, improving affordability requires more supply. Faster planning approvals, better infrastructure, improved development feasibility, and stronger support for residential construction will have a more direct and lasting impact on affordability than tax changes alone.”
To find out more, download LJ Hooker’s Federal Budget Report.
DISCLAIMER - The information provided is for guidance and informational purposes only and does not replace independent business, legal and financial advice which we strongly recommend. Whilst the information is considered true and correct at the date of publication, changes in circumstances after the time of publication may impact the accuracy of the information provided. LJ Hooker will not accept responsibility or liability for any reliance on the blog information, including but not limited to, the accuracy, currency or completeness of any information or links.
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