Negative gearing will no longer apply to newly purchased existing housing stock from 1 July 2027, and for property investors weighing up their next move, this one change reshapes the maths. It matters more than usual right now because rental yields across Australia remain well below the cost of capital, according to Cotality’s June quarter Rental Review.
This means most leveraged investors are not earning enough from rent alone to cover their borrowing costs. Negative gearing has long been the mechanism that made those numbers work anyway. Once it narrows, the way you assess an investment property has to change with it.
Here’s what the reforms actually say, where the yield story is turning, and what property investors can do before the window closes.
The Federal Government’s 2026-27 Budget reforms limit negative gearing in its current form to new residential builds only. Properties held before the announcement on 12 May 2026 are unaffected and can continue to be negatively geared as before. Properties bought between the announcement and 30 June 2027 can still be negatively geared during that window, but not after.
Anyone buying an existing investment property on or after 1 July 2027 will no longer be able to offset rental losses against their salary or other income. Instead, any losses can be carried forward and used against future rental income or capital gains from that same property. New builds, by contrast, retain full access to negative gearing, along with a choice between the existing capital gains tax (CGT) discount or the new cost-base indexation method when they eventually sell.
Not every “new” property qualifies. A newly constructed apartment bought off-the-plan qualifies. A knock-down rebuild of a duplex replacing an older free-standing house also qualifies. An established property with a renovation or an added granny flat does not. The distinction sits on whether the dwelling itself is newly built, not whether it has been improved, and it is the detail most likely to catch investors out.
These reforms were among the most significant for investors in years. Our breakdown of the Federal Budget 2026 housing and tax changes covers how the negative gearing measures sit alongside the rest of the package.
These changes leave investors asking a more basic question: does the rental yield on a property stack up regardless of the tax treatment? The national numbers suggest the answer is shifting, just not evenly.
The national yield picture held flat year-on-year at 3.7%, but that headline figure masks real movement underneath. Cotality’s data showed the shift is most pronounced in the cities that have cooled the most. Sydney dwelling yields rose from 3.0 to 3.3% and Melbourne from 3.7 to 3.9%, as values have softened faster than rents have grown.
There is also a clear gap between markets, and between houses and units within them. Regional areas and outer-ring suburbs continue to offer meaningfully higher rental yields than inner-city stock. Darwin sits at the top nationally with houses yielding 5.6%, while Sydney houses sit at the bottom at just 2.8%.
That gap is not new, but it is a useful reminder that yield and growth potential often sit at opposite ends of the same decision, and the right balance depends entirely on an investor’s goals and timeframe.
With the transition window narrowing, the practical question for property investors is less about the policy itself and more about what to do with the time that’s left. A few adjustments to how an investment property purchase is assessed can make a real difference.
With negative gearing on existing property set to disappear for future purchases, the after-tax return on an established property needs to be judged on its own merits, not on the tax offset that has traditionally propped it up.
Purchase price is only part of the equation. A new build retains negative gearing and CGT discount flexibility after 1 July 2027, which can materially change the comparison once cash flow and tax treatment are factored in alongside build quality, location and depreciation potential. The right investment property loan structure sits underneath this decision, so it is worth understanding your options before you commit.
With rental yields still below the cost of capital in most markets, any purchase decision made on the expectation that future growth will cover today’s shortfall may be risky if that growth takes longer to arrive than planned. Running the numbers on today’s rent, purchase price and yield gives a clearer picture of what a property needs to deliver, rather than relying on a rate cut or a market rebound to make it work.
Yes. Properties held before the 12 May 2026 announcements are unaffected and can continue to be negatively geared as before. The changes apply to existing housing stock purchased on or after 1 July 2027.
A property bought between the 12 May 2026 announcement and 30 June 2027 can still be negatively geared during that window, but not after 1 July 2027.
Yes. New residential builds retain full access to negative gearing, plus a choice between the existing CGT discount and the new cost-base indexation method on sale.
Newly constructed apartments bought off-the-plan and knock-down rebuilds qualify. An established home with a renovation or an added granny flat does not.
These changes are most likely to reward preparation. Whether you are weighing up a new build, reassessing an existing purchase before the window closes or simply want to understand how the new rules affect your borrowing strategy, speaking with a mortgage broker who understands both the lending landscape and the policy detail is the best place to start.
Thinking about how negative gearing changes affect your next investment property move? Speak to the expert team at Shore Financial. Call us on 1300 416 700, email info@shorefinancial.com.au or get in touch today.
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