Australia’s latest Federal Budget has brought with it major changes that could affect where property investors choose to buy and how future investment properties are taxed.

The reforms are intended to attract more private investment in new homes, increasing supply and decreasing competition for existing homes. The biggest changes for investors will be around negative gearing, capital gains tax and government support for new housing infrastructure.

These reforms do not mean that established property is no longer a good investment. But they make a clearer distinction between investing in an existing home and buying a qualifying new build.

Negative gearing will focus on new builds

From 1 July 2027, negative gearing on residential property will generally only apply to eligible new builds.

Negative gearing occurs when the allowable expenses of owning an investment property (including allowable interest on the loan used to acquire the property, property management costs and maintenance costs) exceed the rental income received.

Under the present system, a qualifying rental loss is generally allowed as a deduction against other taxable income including wages or salary.

The new rules will change how some existing properties are treated.

Properties held before the Budget announcement

Grandfathering arrangements generally apply to properties held prior to 7.30 pm AEST on 12 May 2026.

That means existing investors should still be able to offset any eligible rental losses against other taxable income until the property is sold.

So, current property investors are not automatically losing negative gearing as a result of the reforms.

New-build investment properties

Eligible new residential builds will continue to receive the traditional negative-gearing treatment.

Investors buying a qualifying new build will continue to be able to offset eligible rental losses against other income, such as salary and wages, both before and after 1 July 2027.

The goal is to incentivise more investor money to go into building more homes rather than just changing ownership of existing homes.

Established properties purchased after the announcement

Investors still can buy quality real estate.

However, losses from existing residential properties acquired after 12 May 2026 will generally be limited to income associated with residential property from the 2027–28 financial year.

Investors may be able to:

• Offset the loss against income from other residential properties.
• Use the loss against relevant residential property capital gains.
• Carry unused losses forward to future financial years.

However, they will generally not be able to use those losses to reduce unrelated income such as salary or wages.

The loss is not necessarily removed. It is usually held in the investor’s residential property activities until such income is available.

Why new-build property may attract more investors

The reforms do not mean that every new property will increase in value or be a good investment. But they provide some reasons for investors to take a closer look at new housing.

More favourable treatment of rental losses

A qualifying new build may continue to provide access to traditional negative gearing, while losses from some established properties may be restricted.

For investors expecting a property to operate at an initial cash-flow loss, this difference could affect the property’s after-tax holding costs.

Greater focus on housing supply

When the reforms were announced, more than 80% of new investor lending was going into existing homes. The Government wants a greater share of investment to help create additional housing supply.

This could increase interest in:

• House-and-land packages.
• New townhouses.
• Off-the-plan apartments.
• New residential developments.
• Properties that replace one dwelling with multiple homes.

Investors should check, however, that a property is officially classified as an eligible new build. Marketing terms such as “new,” “recently completed,” or “never occupied” may not be sufficient by themselves.

Consultation and legislation is being worked on to provide more information on which properties qualify.

Capital gains tax is also changing

From 1 July 2027, the Government will replace the general 50 per cent capital gains tax discount with a system based on inflation and a minimum tax rate on real capital gains.

The new arrangements will apply to gains arising on or after the commencement date as opposed to gains accrued before that date.

Importantly, investors in qualifying new builds will be able to choose between:

• The existing 50% CGT discount; or
• The new inflation-based arrangements and minimum-tax system.

Which is better will depend on factors such as purchase price, sale price, inflation, ownership structure and holding period. Investors should seek personal tax advice before relying on either option.

More infrastructure could unlock new property markets

The Budget includes a $2 billion Local Infrastructure Fund to support new housing by funding infrastructure such as roads, water, power and sewerage.

The Government says the fund is expected to deliver up to 65,000 homes over the next decade.

This is important because land alone does not make a successful housing market. New developments also need transport, utilities, schools, jobs and everyday services.

Investors can take advantage of infrastructure funding in certain growth areas. But just because the government announces something doesn’t mean every property around will perform well.

Investors should note:

• Whether the infrastructure is funded or only proposed.
• When construction is expected to begin.
• How many properties are planned in the area.
• Local rental demand and vacancy levels.
• Employment and population growth.
• The supply of competing properties.

What if your home can become an investment property?

If you purchased your home before the Budget cut-off on 12 May 2026 and later decide to rent it out, it should generally remain covered by the existing negative-gearing arrangements until the property is sold.

Some lenders are also updating their borrowing calculations to reflect this. Other lenders may apply their own policies.

The key takeaway

The latest Budget reforms are expected to boost investor interest in new housing.

From July 2027, new builds that are eligible will generally continue to be able to access traditional negative gearing, while rental losses from some established properties will be limited to residential property income.

New builds will have extra flexibility in future capital gains tax rules and infrastructure funding may help unlock new housing developments.

But these benefits don’t make all new properties a good investment.

At Power of Property we believe that investors should look at the whole picture: location, supply, rental demand, purchase price, construction quality, infrastructure and long-term market fundamentals.

Tax policy can influence an investment strategy, but it should be an adjunct to a well-researched property decision, not a substitute.