New homes are exempt from the negative gearing and capital gains tax (CGT) discount cuts unveiled in this year’s federal budget, but experts warn property investors may not rush into the home building game.
The federal government has revealed major cuts to negative gearing and capital gains tax discount benefits for property investors in Tuesday’s ‘housing’ budget.
Under the changes, negative gearing has been abolished on existing investment properties bought after budget night, while the 50% CGT discount for properties owned for more than one year has been slashed and will revert to a pre-1999 indexation model.
Read about the negative gearing and CGT changes in details here
But the government has protected new homes from the cuts in a bid to boost home building and increase housing supply across the country, citing the need to address intergenerational inequity in Australia.
Treasurer Jim Chalmers said the tax changes would help about 75,000 Australians achieve the dream of home ownership.
“Since 1999, house prices have risen over 400%, more than twice as fast as average incomes,” he said.
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New homes are exempt from the negative gearing and capital gains tax (CGT) discount cuts unveiled in the federal budget. Picture: Getty
“These changes will level the playing field for workers and first home buyers, and support investment in productive assets, including new housing supply.”
What will investors do
However economists and property experts have warned that the CGT and negative gearing changes will have unintended consequences.
Cate Bakos, buyer’s agent and chair of Property Investment Professionals of Australia (PIPA), said the new home exemptions may see some investors buy newly built property, but there was more to the story.
Treasurer Jim Chalmers has handed down the 2026 budget. Picture: Hilary Wardhaugh/Getty
“There’s risks associated with new property, and often you find that the land component is not as valuable as the dwelling component, so that leads to underperformance from a capital growth point of view,” Ms Bakos said.
“So not every investor will be excited about buying brand new property. I think we can anticipate seeing investors opting for other asset classes and not necessarily jumping into property.
“We’ll see a decline in the number of investors post this decision.”
PIPA chair Cate Bakos says the negative gearing and CGT discount changes will lead to fewer property investors. Picture: Supplied
While the change in the CGT discount will impact other asset classes such as shares, Ms Bakos noted that other assets classes weren’t hit with land taxes, maintenance costs, minimum standards, and other housing-related costs.
Home building impact
Australia is already behind on the National Housing Accord target of building 1.2 million new homes over the five years to mid-2029.
Housing Industry Association (HIA) chief economist Tim Reardon said the new homes exemptions were unlikely to increase the supply of new homes.
“If policy settings reduce investor participation overall, fewer new homes will be built, rental supply tightens further, and the structural shortage worsens,” he said.
“This in turn will see increased investor participation in the established market, and higher rents.”
Mr Reardon cited recent economic modelling by Qaive and Tulipwood Economics showing that restricting negative gearing to newly constructed dwellings would reduce dwelling commencements by around 22,700 homes over five years, and increase rents.
HIA chief economist Tim Reardon says the new homes exemptions won’t increase the supply of new homes. Picture: Tertius Pickard.
The modelling, commissioned by Australia’s biggest industry groups, cautioned that any changes to negative gearing and CGT concessions would end up shrinking the supply of rental homes nationwide and inadvertently pushing rents higher.
REA Group economic analyst Luc Redman said the CGT and negative gearing changes may end up increasing rents in the short term.
“There will most likely be a slight increase in rents in the short term, although that will most likely be concentrated in some areas where investors have high loan-to-value ratios and low yields,” he said.
“In the long term, the exemptions to new build on a relative basis to other assets may mean an increase to supply and a potential softening in rents.
“The exemptions are encouraging because we need to increase housing supply, but we still require further reforms at the state and local levels.”
Negative gearing, CGT changes explained
From 1 July 2027, the government will limit negative gearing for residential property investments to new builds and replace the 50% CGT discount with a pre-1999 indexation model and a minimum 30% tax rate on capital gains.
Property investors will only be able to negatively gear – which allows investors to offset losses against taxable income – new homes after budget night.
Number of rental interests by individuals (2021-22)
| Number of property Interests | Total Individuals | Share of individuals |
| 1 | 1,620,663 | 71% |
| 2 | 428,020 | 19% |
| 3 | 132,338 | 6% |
| 4 | 47,633 | 2% |
| 5+ | 39,507 | 2% |
Homes already negatively geared will be exempted from any change.
Investors who buy an existing property after budget night will be able to deduct losses against residential property income such as rent and capital gains, but not their broader income like a salary.
These investors will be able to carry forward losses to offset residential property income in future years too.
On CGT, the 50% discount on investment properties owned for more than one year will revert to a pre-1999 indexation model and a minimum 30% tax rate on capital gains.
The change will apply to all asset classes and will tax real gains adjusted for inflation over the life of the investment.
The 30% minimum tax rate will apply to capital gains from 1 July 2027 and won’t affect people whose capital gains are already taxed at rates of at least 30%.
The National Housing Accord has a target to build 1.2 million new homes over the five years to mid-2029. Picture: Getty
Recipients of means-tested income support payments such as the Age Pension or JobSeeker will be exempted from the minimum tax if they receive any payment in the financial year in which they realise the capital gain.
Homes owned before budget night will be partially exempt, with the final discount becoming a combination of the proportion of time the asset was held under the different tax settings.
New homes will be exempt from the CGT changes as well, and property investors will have the option of retaining the 50% discount or adopting the inflation-based model on new build purchases.
