Last week's Federal Budget shook up the property market. Treasurer Jim Chalmers delivered sweeping reforms to both negative gearing and capital gains tax, designed to cool investor demand and open the door wider for first-home buyers.
Here's our read on what it all means:
The headline changes
Two reforms sit at the centre of this Budget's housing story. From 1 July 2027, negative gearing will only apply to new builds. If you're buying an established property, the deduction is gone. And the 50% capital gains tax discount – a fixture of property investment for decades – will be replaced with cost base indexation and a 30% minimum tax rate.
If you're a first-home buyer
This Budget was, in many ways, written with you in mind. Government modelling suggests the reforms could help around 75,000 more Australians into home ownership over the next decade,* with less investor competition for established homes creating more room for owner-occupiers to get a foothold.
In practice, the benefit is likely to be gradual rather than dramatic. House price growth is now forecast to slow to around 3 per cent over 2026, down from earlier predictions of 5 per cent.* Affordability won't be solved overnight, but the direction of travel has shifted in your favour.
If you're looking to buy an established home
The investor retreat from established stock creates a real opportunity for owner-occupiers. The Inner West specifically, with its character homes, has historically attracted a strong investor base. As those buyers pivot toward new builds or reassess their strategy entirely, buyers looking for a family home in the Inner City and Inner West may find themselves competing with fewer hands in the room.
Price growth is expected to slow, not reverse, and so this isn't a moment to wait for prices to fall. It's a moment where the competition dynamics are shifting in your favour, and that could be worth acting on.
If you're an investor
If you held a residential investment property before 7:30pm AEST on 12 May 2026, you're grandfathered in, and your negative gearing arrangements don't change. For new purchases of established dwellings from Budget night onwards, rental losses will no longer be immediately deductible against personal income. Instead, they're quarantined and carried forward against future residential property income or capital gains.
New builds remain fully negatively geared, with investors also able to choose between the old CGT discount or the new indexation method when they sell. If your portfolio strategy is evolving, this is the conversation to be having with your accountant before the 2027 transition locks in.
If you're thinking about selling
For those looking to sell, there's a window of opportunity here. Investors reassessing their portfolios in light of the new rules may bring selling decisions forward before July 2027. We expect some uplift in listings activity over the next 12 to 18 months. For owner-occupiers, demand for quality established homes in the Inner City and Inner West isn't going anywhere. A well-presented home in the right pocket will still find its buyer.
What about rentals?
With new investment in established property becoming less attractive, rental supply won't grow quickly from that segment of the market. Population growth and supply constraints remain unchanged, so upward pressure on rents will continue, which is a prominent tension in this Budget that hasn't been fully resolved.
The long-term view
Policy shifts, rate cycles, and global uncertainty. All of it moves sentiment in the short term. But the underlying story of Sydney's Inner West and Inner City doesn't change with a Budget: limited land, deeply connected communities, and a housing stock that can't be replicated.
This isn't the first time negative gearing has been on the chopping block. Australia abolished it in 1985 and reversed course within two years. New Zealand scrapped it in 2021 and walked it back by 2024. Whether this iteration proves permanent or politically short-lived remains to be seen.
If you'd like to talk through what these changes mean for your specific situation, whether you're buying for the first time, reassessing an investment, or thinking about your next move, we're here for that conversation.
Resources
*Federal Budget 2026, BDO Australia
*2026 Budget, Commbank