If your business relies on property investors, the 2026 federal budget just shook things up. The government pulled back negative gearing on established homes, and the effects are already being felt across the country.
We’ve been writing about Australian business and tax policy at Australian Business Magazine for years now. Our team followed this reform closely from the early Senate talks right through to budget night.
In this article, we’ll cover:
- What changed in the 2026 budget
- How the negative gearing business impact works
- Which industries are most at risk
- What’s going on in the rental market
- How CGT changes add to the problem
- What can businesses do about it
Read on to find out where your business stands and what you can do before July 2027.
What Changed With Negative Gearing in the 2026 Budget?
The 2026 federal budget changed the rules for negative gearing on residential property. The policy restricts tax benefits for investors who buy established homes while preserving incentives for eligible new housing developments.
Here are the five changes you need to know about:
- Established Property Restrictions: If you buy an established home after 7:30 pm AEST on 12 May 2026, you can’t use the net rental loss to reduce your salary or wages anymore. Your rental expenses can only offset other residential rental income or capital gains from property.
- New Build Exemption: Properties that genuinely add to the housing supply still qualify for full negative gearing benefits. That includes off-the-plan apartments, duplexes replacing a single dwelling, and homes built on vacant land. However, a simple knock-down rebuild of one house with another won’t count.
- Grandfathering Rules: Any property held before 7:30 pm AEST on 12 May 2026 (including those under contract but not yet settled) keeps the current tax rules for as long as you hold it.
- Carry-Forward Losses: You can roll unused rental losses forward to offset future rental income or reduce capital gains when you eventually sell. The tax benefit remains available, but investors may need to wait years before they can claim it.
- Start Date: None of the changes will be in effect until 1 July 2027. That means properties purchased between budget night and that date can still be negatively geared under the old rules until 30 June 2027.
The government’s goal here is to push investor money toward new housing stock and away from established homes. It’s a tax planning problem for individual investors. But for the businesses that rely on those investors, it’s a revenue problem, and we’ll get into that next.
How Does the Negative Gearing Business Impact Work?
The negative gearing changes could reduce investor demand for established properties. Lower investor activity would then affect the businesses and industries that earn income from property investment.
Think about what happens when one investor decides not to buy an established property. The real estate agent loses a sale, and the mortgage broker loses a loan application that would’ve followed. The conveyancer also misses out on the settlement.
Meanwhile, tradies who would’ve prepared the property for tenants lose the work that came with it. Each transaction that doesn’t happen removes income from multiple businesses at once. So when investor demand drops across the market, the revenue loss can spread quickly across the property sector.
In other words, the property reform impact is reshaping how value moves through the property ecosystem.
Industry Perspective: Areas with the highest investor ownership may also experience the largest flow-on effects for local property businesses.
Which Businesses Face the Most Exposure?
Real estate agencies, mortgage brokers, tradies, and property management firms usually face the most exposure to negative gearing reform. Since these businesses sit closest to investor transactions, their revenue takes the first hit whenever investor activity slows down.
The impact becomes clearer when you look at each sector individually.
Real Estate Agencies and Sales Teams
Investor buyers make up a large portion of established property sales in Australia. In suburbs where negatively geared properties are concentrated, these purchases can account for a significant share.
So when there’s a drop in investor demand, it means fewer listings that convert into sales. That translates directly into lower commissions and tighter cash flow for agencies (and the effects are rarely limited to a single quarter).
Investor ownership is particularly high in areas like western Sydney, south-east Melbourne, and inner Brisbane. Those markets are likely to experience the sharpest decline in transaction volume for that reason.
Mortgage Brokers and Lending Providers
When investors can no longer borrow as much money as they used to, their ability to take on leverage decreases. Mortgage brokers often feel the impact first because they earn income whenever an investor takes out a home loan. That income comes in two forms: an upfront commission at settlement and ongoing trail payments for the life of the loan.
Industry estimates suggest borrowing capacity could fall by around 10-15% for a typical investor in the 37% tax bracket. The impact may be even greater for investors with multiple properties, as some could face reductions of more than 20%.
Tradies and Renovation Contractors
Master Builders Australia estimated in 2019 that more than $1.8 billion a year was spent on repairs and maintenance for negatively geared properties. The estimate was based on the Australian Taxation Office (ATO) data from 2016-17, so the dollar value would likely be higher today.
The changes could make some landlords less willing to spend on repairs and improvements. A decline in investor purchases of older properties could also reduce the amount of renovation work that typically follows a sale.
Residential Property Management Firms
Property management firms depend on a steady flow of new investor landlords to grow. Every new investor who buys a rental property adds to a manager’s portfolio, and that client base is the core of the business.
But when there’s no steady pipeline of new landlords entering the existing market, portfolio growth will stall. Specifically, firms that built their books around negatively geared investor clients will now face a flat or shrinking roster.
Client Insight: Investors who hold properties for the long term often value consistency and communication more than the lowest management fee.
Why Is Commercial Property Now a Safer Bet?
Commercial property is a safer bet because it sits completely outside the negative gearing restrictions. The 2026 budget reforms only target residential investment property, which means office, retail, and industrial assets aren’t touched.
The following distinctions give commercial property an edge right now:
- Full Negative Gearing Retained: You can still offset rental losses on commercial property against your salary, wages, or any other income. Nothing about the existing tax treatment has changed for this asset class.
- No New-Build Carve-Out: Residential investors now need to buy a qualifying new build to keep full tax benefits, but commercial property doesn’t face the same restriction. Tax treatment remains the same regardless of the property’s age, from a 40-year-old warehouse to a brand-new office fit-out.
- Investor Capital Shift: The new rules may encourage some investors to look beyond established residential property. Industry commentators argue that commercial property could benefit because the new negative gearing restrictions apply only to residential investments.
- Higher Net Returns: Commercial leases tend to run longer and include clauses that pass outgoings onto the tenant. That structure often produces a stronger net profit compared to residential rentals, where the landlord typically covers most of the expenses.
While the changes don’t guarantee a shift toward commercial property, they alter the trade-offs investors need to weigh.
How Could Fewer Investors Affect the Rental Market?
Fewer investors in the established market could tighten rental supply and push rents higher across Australian cities. The rental market is already under pressure, so any reduction in investor activity could make conditions even more challenging for tenants.
Let’s get into more detail about how the rental market could change as investor activity slows.
Shrinking Landlord Numbers in Established Areas
When investors stop buying established homes, the rental pool stops growing. And because grandfathered investors now have a strong tax incentive to hold rather than sell, the existing stock won’t turn over the way it used to either.
That creates a real gap in suburbs with high concentrations of investor-owned rentals, like western Sydney, Brisbane’s inner south, and Melbourne’s west. These areas have historically relied on a constant flow of new investor landlords to keep rental supply moving.
Once that flow dries up, tenants in those pockets will have fewer rental properties to choose from.
Market Dynamic: Rental shortages often emerge at the suburb level before they appear in city-wide statistics.
Rising Rent Pressure and Tighter Vacancy Rates
According to SQM Research‘s May 2026 vacancy report, Australia’s national vacancy rate stood at 1.2%, with Perth at 0.6% and Brisbane at 0.8%. Not a single capital city recorded a vacancy rate above 2%.
Those figures highlight how little spare capacity remains in the rental market.
In that context, Commonwealth Bank of Australia expects the negative gearing changes to modestly increase rental pressure over time. Even a small reduction in new rental listings could therefore push rents higher, particularly in high-demand capital cities where competition for available properties is already intense.
Lessons From New Zealand’s 2021 Reform
New Zealand tried a similar reform in 2021 but reversed it within four years. The government removed mortgage interest deductibility for residential investors, and landlords responded by raising rents to cover the gap in their cash flow.
In particular, their national average rents hit $600 per week, with Wellington climbing to $695 and Auckland’s CBD sitting at $620. The policy became a major campaign issue in the 2023 election, and full interest deductibility was restored by April 2025.
New Zealand’s loss ring-fencing rules from 2019 do still remain in place, though. Australia’s version is designed differently, but the warning from across the Tasman is hard to ignore (it may well be a cautionary example for Australia).
How Do CGT Changes Compound the Business Impact?
CGT changes compound the negative gearing business impact by reducing after-tax returns on property sales alongside the negative gearing restrictions. The negative gearing reforms change how investors hold property on their own, but the CGT changes hit them again when they sell.
The table here shows how the old and new rules compare side by side:
| Feature | Old Rules | New Rules (From 1 July 2027) |
| CGT Discount | 50% discount on capital gains for assets held 12+ months | Replaced with cost base indexation based on inflation |
| Minimum Tax on Gains | No minimum | 30% minimum tax on net capital gains |
| New Build Treatment | Same rules as established property | Investors choose between 50% discount or new indexation method |
| Trust Minimum Tax | No minimum | 30% minimum on discretionary trust distributions from 1 July 2028 |
The shift from a flat 50% discount to inflation-based indexation means the tax outcome now depends on how long you hold the asset. It also depends on how much prices grow relative to inflation, which can change the final tax payable.
The old 50% discount would’ve been more generous in most cases for investors who bought during periods of strong capital growth. However, under the new rules, the taxable portion of the gain will often be larger.
The combined effect extends across the entire investment cycle. Investors face reduced tax benefits while they own the property and a larger tax liability when they eventually sell.
And when investors pull back, the businesses that earn revenue from those transactions feel it twice over. For instance, agents lose the sale, brokers lose the refinance, and tradies lose the pre-sale renovation work (future opportunities can disappear, too).
Unfortunately, the CGT reforms add another layer of pressure for businesses that are already dealing with weaker investor demand following the negative gearing changes.
What Can Affected Businesses Do to Prepare?
Affected businesses have several options, including new builds, commercial property, and first-home buyer clients. Since the reforms aren’t going away, an early response may provide an advantage over competitors that wait until 2027.
Here are some ways property-linked businesses can get ahead of the changes:
- Pivot to New Build Services: As we mentioned earlier, new builds still qualify for full negative gearing and the 50% CGT discount. So if you can redirect part of your sales effort towards new housing stock, it’ll put you in front of the investors who are still actively buying.
- Review Cash Flow Projections: You should run your revenue model without the established investor segment and to see where the gaps are. Businesses that stress-test their cash flow now will have time to fill those holes before July 2027.
- Target Commercial Property Clients: Office, retail, and industrial assets sit completely outside the negative gearing restrictions. That distinction could create new opportunities for agencies and brokers that have traditionally focused on residential property.
- Upskill Your Team: Your staff will likely get questions from worried clients about what’s changed, what’s grandfathered, and how carry-forward losses work. But if you can provide clear answers in plain English, you’ll be in a stronger position to retain client trust.
- Diversify Revenue Streams: A heavy reliance on a single investor segment can leave a business vulnerable to policy changes. That’s why we recommend expanding your service offering through buyer’s advocacy, referral partnerships, or property advisory services.
- Build First Home Buyer Pipelines: These reforms are designed to bring more first-home buyers into the market. That shift could create new opportunities for businesses that have traditionally focused on investors.
The next 12 months will be important for getting ready before the changes fully affect the market.
Is Your Business Ready for the Negative Gearing Shift?
The negative gearing reforms have implications for a wide range of property-related businesses. Real estate agencies, mortgage brokers, tradies, and property managers are among the sectors most exposed to changes in investor demand.
The reforms may not take effect until 2027, but the adjustment process starts well before then. Businesses that use the transition period effectively are likely to be better positioned when the new rules arrive.
If you’re running a property-linked business in Australia, now is the time to review your strategy and plan your next move. You can find more guides like this one on Australian Business Magazine.
Frequently Asked Questions (FAQs)
The negative gearing reforms have raised a lot of questions among investors, business owners, and property professionals. Here are answers to some of those questions.
What’s the Difference Between Negative Gearing and Positive Gearing?
The difference comes down to cash flow. A negatively geared property operates at a loss because expenses exceed rental income, while positive gearing occurs when rent covers costs and leaves a surplus.
Is Negative Gearing More Effective for High-Income Earners?
In many circumstances, yes. The tax benefit is often greater for investors on higher marginal tax rates because deductions can offset a larger amount of taxable income.
Can a Property Switch Between Negative and Positive Gearing?
Absolutely. Rising rents, lower interest rates, or reduced expenses can mean a previously negatively geared property qualifies as a positively geared property over time.
Can You Be Negatively Geared Without a Mortgage?
Yes. Although interest is a common deduction, other costs can exceed rental income. Maintenance, insurance, and management fees may still create a loss.
Is Property Investing Still Worth It After the Reforms?
Many investors still see value in property investing, but the entire process now requires closer attention to tax outcomes, finance costs, and long-term investment goals.
Do Interest Rates Have a Bigger Impact on Returns Than Tax Changes?
In some market conditions, they can. A significant increase in interest rates may have a greater effect on investment returns than a change in tax policy, particularly for highly leveraged investors.
Can Negative Gearing Apply to Assets Other Than Property?
Potentially. The same principles can apply to certain income-producing assets if the income generated falls short of the costs associated with owning the asset.
Is Property Better Than Other Sources of Income?
Property is one option among many other sources of income, and each investment approach comes with its own risks and potential benefits.
