The headlines say negative gearing is dead and property investment with it. Ten years of modelling tells a very different story — and points to a risk almost nobody is talking about.
Most Australians are confused about property investment right now. The 2026 Budget abolished negative gearing for established properties. The media calls it the end of an era. Sell now, the headlines warn, while you still can.
But here is the question nobody is actually asking. The government wants 1.2 million new homes built by 2029, largely by changing zoning to allow higher density. Yet only the top 7 to 10% of income earners can afford a one-million-dollar investment property. So if supply opens up and demand is capped by affordability, who is left to buy?
That is the real constraint. Not the tax change. To show why, we modelled two identical investments side by side — same property, same rent, same suburb. One bought under the old rules. One bought under the new. Then we asked what happens if you have to sell early.
Who Can Actually Buy?
Before tax matters at all, you have to service the loan. On a one-million-dollar purchase at 80% lending and 6.5% interest, the annual principal-and-interest repayment is about $64,800. Against $46,800 of rent and $10,000 of outgoings, the first-year cash shortfall before any tax effect is roughly $28,000.
| Year 1 | Amount |
|---|---|
| Gross rent ($900/week) | $46,800 |
| Outgoings | $10,000 |
| Loan repayment (P&I, 6.5%) | $64,820 |
| Pre-tax cash shortfall | −$28,020 |
| Pre-budget: net cost after refund | −$21,059 |
| Post-budget: net cost (no offset) | −$28,020 |
Assumptions: 6.5% interest, 80% LVR, 47% marginal tax rate. Illustrative.
Under the old rules you offset that loss against your salary at 47% and recover around $7,000. Under the new rules that offset is gone — the loss is quarantined, and the full $28,000 comes out of your own pocket. In short, the new rules raise the income you need to carry the same property, narrowing the buyer pool further.
Ten Years, Two Regimes
The pre-budget investor deducts the rental loss against salary each year, with the benefit largest early and shrinking as the loan amortises. Over ten years the net out-of-pocket cost lands near $193,900, with roughly $12,400 of refunds collected along the way. On sale, though, the bill arrives: a nominal gain of about $443,000, half of it taxable, taxed at 47% — $104,161 in capital gains tax.
The post-budget investor pays more to hold — about $206,400 over the decade, with no annual refunds. But the new capital gains rules change everything on the way out. Cost-base indexation lifts the $1,000,000 cost base to about $1,410,600 over ten years, leaving an indexed gain of just $32,600. Carried-forward rental losses of $51,000 then wipe that out entirely.
| Ten-year net position |
|---|
| Outcome | Pre-budget | Post-budget |
|---|---|---|
| Net sale proceeds after CGT | $718,986 | $823,147 |
| Cumulative holding cost | −$193,936 | −$206,374 |
| Capital gains tax paid | $104,161 | $0 |
| Net overall position | $525,051 | $616,773 |
Illustrative modelling on the stated assumptions. Not advice. See disclaimer.
On these numbers, the investor who bought after the changes finishes about $91,700 ahead. The headline fear has it backwards.
The change that dominates the news — losing the salary deduction — turns out to be the smaller lever. The quieter change, indexation replacing the 50% discount, is the one that moves the result. In a decade of moderate inflation and moderate growth, it moves it in the buyer’s favour.
What If You Sell in Five Years?
Plans change. Sell at year five and the picture is tighter: selling costs are incurred, the loan is barely paid down, the gain is thin. The pre-budget investor still pays about $43,800 in CGT; the post-budget investor, with the indexed cost base almost matching the sale price, pays nothing — netting roughly $461,700 against $418,000.
But the deeper lesson is simpler. Property does not work in five years. Transaction costs and a barely-amortised loan punish a short hold under either regime. Ten years is where this asset class earns its reputation.
The Risk Nobody Is Pricing
Tax is the question investors ask. Supply is the question that will decide returns. If only the top sliver of earners can service a one-million-dollar property — and the new rules lift the income needed — then wherever rezoning genuinely unlocks high-density volume, the weight of new supply can cap price growth for years. Not because demand disappears, but because the pool of buyers who can pay is thin.
Where supply stays scarce — the established houses of the Eastern Suburbs, on land that cannot be rezoned into existence — the opposite holds. Under the new regime, location and scarcity matter more, not less. The tax treatment is survivable. The real risk to a ten-year return is buying into a segment where supply can be switched on faster than demand can grow.
So — Should You Buy?
The new rules do not kill property investment. They barely dent it over a full cycle. The question was never really about negative gearing. It is the one every investor should have asked all along: am I buying the right asset, in the right place, for the right length of time?
That is a conversation worth having before you commit your money — not after.
