Property investors across Australia are preparing for a potential shake-up in tax policy, with new research indicating that changes to the Capital Gains Tax (CGT) discount and negative gearing rules could prompt significant adjustments in investor behaviour.
A nationally representative survey conducted by Money.com.au reveals that 39% of property investors would reconsider their real estate holdings if the government reduces the current 50% CGT discount on investment property sales.
An additional 22% said capping negative gearing concessions to a single property would lead them to scale back or sell.
Money.com.au’s Mortgage Expert, Nick Burgess, warns the implications could ripple through the housing market.
“If property investors pull back or consider selling, that has real implications for rental prices, as fewer investment properties means fewer homes available to rent, which can push rents higher. Some investors may also increase rents to offset the impact of these changes on their returns or delay selling or hold out for higher prices to maintain their after-tax returns,” he said.
Mr Burgess added that the reforms may not necessarily improve housing affordability.
“Not every Australian renter is in a position to become a homeowner due to lending serviceability requirements and the ballooning costs of homeownership, including stamp duty, council rates, insurance and maintenance.
“The research suggests some investors may scale back or shift away from property towards other asset classes, but it remains to be seen how material the impact would be in practice.”
Despite these concerns, the survey found that 39% of investors say neither policy would affect their decision to continue investing in real estate. According to the Australian Taxation Office (ATO), roughly 2.26 million Australians own an investment property, including nearly 640,000 who own two or more properties.
State-by-State investor sensitivity
Investor reactions to potential tax changes differ by state. South Australia and Queensland showed the highest sensitivity to CGT reforms, with 45% and 42% of investors respectively indicating they might scale back investment if the CGT discount is reduced – well above the national average. In comparison, NSW and Victoria registered 38% and 39%, while Western Australia trailed at 33%.
Responses to negative gearing changes were less uniform. Western Australia led with 33% of investors likely to pull back, followed by 25% in NSW, 22% in Victoria, and lower shares in Queensland (16%) and South Australia (11%).
What could be coming
Industry speculation, supported by reporting from The Australian, suggests the federal government is likely to reduce the CGT discount from 50% to 33% and cap negative gearing at two properties per individual.
Independent housing analyst Eliza Owen told The Australian’s The Money Puzzle podcast that “headline inflation over the last decade is up about 33 per cent, and the typical holding period for investment property is considered to be 10 years, so I do wonder if that is the basis on which they come up with the number.”
The changes are expected to be grandfathered, meaning existing investors will continue under current rules until they sell.
But the reforms could reshape investor strategies, particularly as net rental yields in major cities remain low at 2–3%. Analysts suggest the new CGT rules may push investors toward regional markets or outer suburbs where returns are higher.
Industry veteran and commentator Tom Panos also highlighted the potential market impact in an Instagram update, saying:
“It is official. We’re likely to be getting a change to capital gains tax. Of course, it’s not going to be scrapped, but it is going to be trimmed. The 50% discount looks like it’s heading down to 33%. Negative gearing is not going to be abolished, but it will likely be capped at two properties.
“This isn’t a crash switch. It’s more of a slow squeeze on investors – less incentive to hold, less upside on the exit, and more friction in the system.
“If you can only negatively gear two properties, let me tell you what’s going to be hot: blocks of units. Most authorities, including banks, consider a block of units as one property. That’s a way people may get around the two-property negative gearing cap.”
The Australian Government is expected to announce any changes in the 2026–27 Federal Budget on May 12, with Treasury modelling indicating that adjustments to CGT and negative gearing could have a material impact on the national accounts, where CGT currently represents a $32 billion item annually.
As investors and agents prepare for a policy shift, Mr Burgess advises caution.
“The research suggests some investors may scale back or shift away from property towards other asset classes, but it remains to be seen how material the impact would be in practice.”