The 2026 Budget did not tweak property investment. It rewrote the arithmetic. A lot of what worked for the last twenty years does not work the same way anymore, and anyone still running the old numbers and telling you nothing has changed is either not paying attention or hoping you are not.
We have spent the months since 12 May running our own figures again, and sitting across from brokers, planners and accountants doing the same. Where we have landed: residential is harder than it was, the reasons it built wealth in the first place have not moved, and for the small number of people positioned to use it, this is one of the better buying windows we have seen in years.
What actually changed
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 passed Parliament on 25 June and received Royal Assent the following day. This is law now, not a proposal, and the detail is worth getting exactly right.
Negative gearing. From 1 July 2027, if you own an established residential property that you acquired after 7:30 pm on Budget night, 12 May 2026, your net rental losses can no longer be offset against your salary, wages or business income. They are quarantined. You can still use them against income from other residential rental properties, and against capital gains when you sell a residential rental. Anything left over carries forward indefinitely.
The distinction matters more than the headlines suggested, because the deductions are not deleted; they are ring-fenced and deferred. If you are running a portfolio with positive-yielding assets alongside negative-yielding ones, you have more room to move than someone with a single loss-making property and a payslip.
Grandfathering. If you held the property, or were under an unsettled contract, at 7:30 pm on 12 May 2026, nothing changes for you on that property. You keep the existing treatment for as long as you hold it. Two things to understand about it: grandfathering attaches to the property rather than to you, and it does not survive a sale. Sell a grandfathered asset and the buyer starts under the new rules.
Capital gains tax. From 1 July 2027, the 50% discount is replaced. Instead, you index your cost base for inflation, so you are taxed on the real gain rather than the nominal one, and a minimum 30% rate applies to that gain. This applies to individuals, trusts and partnerships. Gains that accrued before 1 July 2027 keep the 50% discount, so if you already hold property, the historical gain is protected and only the growth from that point forward moves to the new system.
Your own home is untouched. The main residence exemption did not change.
New builds are the carve-out. New residential dwellings keep full negative gearing and get to elect the old 50% CGT discount if it suits them better. This is the single biggest fork the Budget created. It is also the part that is not finished. The exact definition of a new build is still being written, with a draft released on 4 August proposing a test based on acquisition within 24 months of a certificate of occupancy, and consultation on that draft closing 21 August 2026. If someone is selling you a property on the basis that it definitely qualifies, ask them to show you where that is written down.
Two more things worth knowing. A 30% minimum tax on discretionary trust distributions has been announced for 1 July 2028 but is not yet legislated, with restructuring relief proposed between July 2027 and June 2030. And on 10 August 2026, a restriction commenced on new limited recourse borrowing arrangements for residential property inside a self-managed super fund. Existing arrangements are grandfathered, and refinancing is preserved, but the arrangement where a fund uses its balance as a deposit and borrows the rest to buy a residential property is closed to new entrants. Superannuation is a financial product, and we are not licensed to advise on it, so anything to do with your fund is a conversation for a licensed adviser and your fund’s accountant.
What did not change
This is the part that gets lost.
Losses are deferred rather than destroyed, and grandfathered properties keep their treatment for the life of your ownership. Existing super fund arrangements are grandfathered, and companies and super funds keep their existing capital gains settings entirely. Commercial property sits outside the negative gearing change, though not outside the CGT change: the new CGT rules still apply to commercial assets held by an individual, partnership or relevant trust, so ownership structure matters, and it is a distinction a lot of commentary is currently getting wrong.
Then the big one. The reason property built wealth in this country was never the tax deduction.
We have said this to clients for years, and it has never been more relevant. A negatively geared property with no growth engine and no value-add potential was a bad investment before 12 May 2026. It was just a bad investment that came with a consolation prize at tax time. The Budget took the consolation prize away and left everything else exactly where it was.
If your entire investment case rested on the deduction, the Budget did not break your strategy. It exposed it.
The window nobody wants to talk about
Here is where the market sat as we wrote this, in August 2026.
National dwelling values fell 0.7% in July, the largest monthly fall since December 2022, with the national median at $928,421 and the index back below its March peak (Cotality Home Value Index, July 2026). Sydney and Melbourne are both down over the last twelve months. Total listings were up 22.8% on this time last year (SQM Research, July 2026). Properties are taking around 35 days to sell, and vendors are discounting 3.9%. Final auction clearance rates have spent most of the winter below 50%, having peaked around 66% in February.
Investors have stepped back hard. Investor lending fell 8.6% in the June quarter, the largest quarterly fall since the September quarter of 2022 (ABS Lending Indicators, released 14 August 2026). Ray White’s auction data showed investor buyers down 31% in the nine weeks to late June, with a partial recovery since.
Now look at the other side of the ledger. Rental vacancy sat at 1.3% nationally in June and asking rents were up 8.1% over the year (SQM Research). Net overseas migration ran at around 301,000 in calendar 2025 (ABS). The National Housing Accord is roughly 112,000 dwellings behind where it needs to be, with an unusually large pipeline of dwellings still under construction.
Fewer buyers, more stock, longer selling times, vendors discounting, and a rental market as tight as it has been in a decade.
Michael’s position has not shifted since the week the Budget landed. In a market like this one, the buyer who does well is usually the one who is already organised: finance sorted, brief written down, a number they will not go past. When a vendor’s circumstances change, they can move that week instead of starting their homework. Where a vendor genuinely needs to sell, there is more room to negotiate than there was two years ago. Whether confidence returns, and when, is not something we or anyone else can tell you. Past market cycles are not a reliable indicator of future performance.
The caveat we owe you. Waiting is not free. The Reserve Bank has raised rates three times this year and the cash rate sits at 4.35%, with headline inflation at 3.8% in the June quarter, trimmed mean at 3.6%, and the Bank not expecting inflation back at the middle of its target band until early 2028. Canstar analysis published in June 2026 put the cost of those three rises at roughly $35,800 of borrowing capacity for a single average earner and around $71,600 for a couple. Over the first four months of 2026, the Sydney median house price fell by about $19,000.
For most buyers, capacity has fallen faster than prices have. Sitting on the sidelines waiting for a better price can quietly cost you more than the discount you are waiting for.
We are not telling anyone to buy. Only that “wait and see” is a position with a price on it, and in our experience, almost nobody who takes it has worked out what theirs is.
What still stacks up
Five approaches we would stand behind post-Budget. Each with its downside stated, because a strategy you only hear the upside of is a sales pitch.
1. Cash flow first
If a property is positively geared from day one, there are generally no rental losses for the quarantining rule to apply to. Whether that holds in any given year depends on your own figures. And as loss-financed buyers step back from the market, the competitive dynamic in genuinely high-yielding areas shifts in favour of the people who were never relying on the deduction.
The downside. Cotality analysis in June 2026 found only around 0.8% of suburbs nationally could deliver a cash-flow-positive result on a 20% deposit at prevailing rates, so this is not a strategy you can execute just anywhere. And chasing yield alone is how investors end up owning assets in towns with a single employer and no growth engine, collecting rent on something that will be worth the same in ten years.
2. Value-add and manufactured equity
This is our own approach and we are not going to pretend to be neutral about it. When you add value yourself, through a renovation, a strategic conversion, a second dwelling or a subdivision, you are not waiting for the market to hand you anything. You create the equity and the yield uplift, and you do it on your timeline rather than the market’s.
In a flat or falling market this matters more, not less. Growth you manufacture is the only growth you control.
The downside. Costs have moved. Construction costs are up around 2.8% over the year to June 2026 (Cotality Cordell Construction Cost Index), and the level is permanently reset well above pre-pandemic. On the projects we run, work that would once have been costed in the tens of thousands now frequently prices as a six-figure exercise. The feasibility work has to be done properly and honestly, and plenty of sites that would have stacked up three years ago do not now.
One specific point, because we are seeing it get missed. A granny flat built next to an established property is not expected to qualify as a new build for negative gearing purposes. Both the Housing Minister and the Secretary to the Treasury said so on the record in June 2026, though the binding definition sits in a regulation that is still in draft. If you bought the underlying property before Budget night, you are grandfathered anyway, and this is largely academic. If you bought after, the value-add still works on its own merits, but it will not rescue the tax treatment. We have set that out scenario by scenario in our granny flat article.
3. New builds, carefully
They keep the deduction, they keep the CGT election, and depreciation on new construction is materially better. On an after-tax basis, the gap between new and established has widened. How wide depends entirely on your marginal rate, your holding costs and the asset, so it is a calculation to run with your accountant rather than a rule of thumb.
The downside. The definition is not finalised, and settlement valuation gaps are a live risk when values are falling, so a property that valued up at contract may not at settlement. Construction accounted for roughly a quarter of all company insolvencies in the last financial year. Most importantly, “new build” is not a strategy; it is a tax attribute. Plenty of new builds in oversupplied corridors are likely to be poor investments that happen to be deductible.
4. Structure, for the right reason
Companies and super funds retain their existing capital gains treatment. A minimum rate on discretionary trust distributions has been announced for 2028 but is not yet legislated, with a restructuring window proposed from July 2027 to June 2030. There are legitimate reasons to hold property in a structure, and the Budget has made those decisions more consequential. We are not licensed to advise on structures, and nothing here is a recommendation to use one. Structure is a decision for your accountant and solicitor, on your own facts.
The downside, and this is Michael’s point from an earlier interview rather than a theoretical one. We keep meeting investors who bought in a trust because a broker mentioned it or because they read something in a Facebook group, then bought an asset that has nothing to do with why you would use a trust in the first place, and are now paying for a structure that is doing nothing for them. Structure follows strategy. Never the other way around.
5. Understand what grandfathering is worth
If you owned before Budget night, that treatment is yours for as long as you hold that asset. Selling forfeits it permanently and you cannot get it back.
This is precisely why the widely predicted post-Budget investor sell-off did not happen. The data showed investor buying fell sharply and investor selling fell just as sharply. Grandfathering created a powerful reason to sit tight.
The downside, and it is a real one. Lock-in cuts both ways, and we have already had two conversations this year with people talking themselves into keeping an asset that has not performed in five years, purely because selling it would cost them a tax position they were not using anyway. The tax tail should not wag the portfolio dog.
Where we are still seeing value
We get asked constantly for a list. We are deliberately not giving one, because lists like that are wrong within six months and they live on the internet forever.
What we will say is where we are still trading with confidence and where we are not.
We continue to see data we like on the Central Coast of New South Wales, in a handful of regional New South Wales pockets, across parts of regional Victoria, and in northern and regional Tasmania. Entry prices in the stock we have been looking at have generally started around $500,000, with Tasmania closer to $600,000 to $700,000, as at August 2026. Read all of it as a description of where we have been active rather than a recommendation to buy anywhere, and remember prices move.
Everywhere else, broadly, is flatlining. Some are actively correcting, in enough places that we are trading more cautiously than we were twelve months ago. Our read comes from vacancy rates, days on market, and what selling agents tell us when we ring them about stock that has not moved.
If someone hands you a list of five hotspots today, ask them what they said twelve months ago and whether they still stand by it.
What we would avoid
Small metro apartments. We have been consistent on this regardless of what the market is doing. We would take a value-add play over an apartment every time. The resale data supports the caution: Domain’s Profit and Loss report for the first half of 2026 put the share of Melbourne unit resales made at a loss at 27%.
Off the plan. Long settlement periods, valuation risk at completion, and you are buying something you cannot inspect from a party whose incentives are not aligned with yours. In a falling market that risk profile gets worse, not better.
House and land in oversupplied corridors. Being a new build makes it deductible. It does not make it scarce.
Before you do anything with any of this
Every strategy in this article is a tactic. None of them is a plan.
The question was never “what does the government allow me to deduct.” It is where you are in your journey, what your portfolio needs next, whether you need cash flow or growth right now, what structure you are buying in, and what your exit looks like. Get those right, and the tax treatment is a detail you optimise around. Get them wrong, and no deduction was ever going to save you.
Money does not sit still and wait for a clear run. Every option in front of you right now carries a cost, including doing nothing, and most people have only ever priced one of them. So the question is not whether to act. It is whether you are acting on a plan or on a headline.
If you would like to talk through how these changes sit against your property plans, book a call with us. We are a buyer’s agency and property advisory firm, not a licensed financial adviser, tax agent or credit provider, so we will point you to the right specialist where the question is a tax, super, lending or legal one. Some of those conversations end with us telling someone to fix their finance and call us back in six months. We would rather say that than take the engagement.