Investment Property in 2026: We Modelled Both Scenarios. Here’s What Actually Matters.

Most Australian investors believe the 2026 Budget changes to negative gearing mark the end of property investment. The headlines are blunt: negative gearing abolished, capital gains tax reformed, deductions gone. The instinct is to assume that buying an investment property after the changes is a far worse deal than buying before them.

The modelling in this paper tells a more surprising story. Over a realistic ten-year hold, an investor who buys under the new regime can finish in a stronger net position than one who bought under the old rules — because cost-base indexation and carried-forward rental losses sharply reduce the tax payable on sale. The headline change to the deduction is real, but its long-term impact is smaller than the noise suggests.

The more important constraint is not tax. It is affordability and supply. Australia has a national target to build 1.2 million new homes by mid-2029, yet only a thin slice of income earners can service a one-million-dollar investment property at today’s rates. The real question for the decade ahead is who is left to buy.

This paper models two identical investments side by side, examines a five-year early-exit, and sets the result against the wider market. All figures are illustrative and rest on the assumptions set out in Section 3.

The Affordability Question: Who Can Actually Buy?

Before any tax scenario matters, an investor has to service the loan. On the assumptions below, a one-million-dollar property bought at an 80% loan-to-value ratio carries an annual principal-and-interest repayment of roughly $64,800. Against rent of $46,800 and outgoings of $10,000, the first-year cash shortfall before any tax effect is about $28,000.

Under the old rules, the investor offsets the rental loss against salary at a 47% marginal rate, recovering roughly $7,000 and reducing the net holding cost. Under the new rules that offset is gone: the loss is quarantined, so the full $28,000 must be funded from after-tax income.

In practice this means an investor needs comfortably six figures of surplus income to carry the property. As a guide, the top 10% of Australian income earners begin at roughly $133,000 (assumption, based on recent ATO/ABS distribution data). A one-million-dollar investment property therefore sits within reach of only the top 7–10% of earners — and the new rules narrow that pool further, because the lost salary offset raises the income needed to carry the same property.

Assumptions and Model Parameters

Every figure in this paper flows from the following inputs. Where a figure is a forward estimate rather than a known rate, it is marked as an assumption.

• Purchase price: $1,000,000
• Loan-to-value ratio: 80% ($800,000 loan)
• Interest rate: 6.5% p.a., principal and interest (assumption — within the June 2026 market range for investment loans)
• Loan term: 25 years
• Rent: $900/week ($46,800 p.a.)
• Outgoings: $10,000 p.a.
• Property appreciation: 4% p.a. (assumption — long-run average)
• Rent growth: 4% p.a. (assumption)
• Outgoings growth: 4% p.a. (assumption)
• Inflation for CGT cost-base indexation: 3.5% p.a. (assumption)
• Investor marginal tax rate: 47% (45% top rate + 2% Medicare levy)
• Selling costs on exit: 2.5% of sale price (assumption)
• Holding period: 10 years (primary), 5 years (alternative)

Tax treatment, pre-budget (property acquired before 7:30pm, 12 May 2026): full negative gearing — rental losses deductible against all income — and the 50% capital gains tax discount on sale.

Tax treatment, post-budget (established property acquired after the cut-off; changes apply from 1 July 2027): rental losses can no longer be offset against salary. They are quarantined and carried forward, available against future rental income or against the capital gain on sale. The 50% CGT discount is replaced by cost-base indexation with a 30% minimum tax rate on the gain.

Scenario One: Pre-Budget Investor

The investor deducts the rental loss against salary each year. The benefit is largest early, when interest is highest, and shrinks as the loan amortises and rent rises — by year seven the property turns cash-flow positive and the investor begins paying tax on the net rent.

Cumulative net out-of-pocket over ten years (after refunds): approximately $193,900. Total tax refunds collected along the way: approximately $12,400.

Year-Ten Sale (Pre-Budget)

Scenario Two: Post-Budget Investor

The same property, the same loan, the same rent. The difference: no rental loss can be claimed against salary. Each year loss is quarantined and carried forward. The investor funds the full cash shortfall, so holding costs run higher during the decade.

Cumulative net out-of-pocket over ten years: approximately $206,400 — about $12,400 more than the pre-budget investor, the mirror image of the refunds the pre-budget investor collected.

Year-Ten Sale (Post-Budget)

Here the new regime works in the investor’s favour. Cost-base indexation lifts the $1,000,000 cost base to roughly $1,410,600 over ten years at 3.5% inflation, leaving an indexed gain of only about $32,600. The $51,058 of carried-forward rental losses then more than cover it — reducing the taxable gain to nil.

Comparative Analysis: Ten-Year Outcomes

Combining holding costs and net sale proceeds gives the full picture. The pre-budget investor enjoys lower holding costs but hands back more than $100,000 in CGT on the way out. The post-budget investor pays more to hold but keeps the gain almost intact.

On these assumptions the post-budget investor finishes roughly $91,700 ahead over ten years. The abolition of negative gearing removes a modest annual benefit; cost-base indexation removes a large tax bill at the end. Over a full cycle, the second effect wins.

This is the counter-intuitive heart of the matter. The change that dominates the headlines — losing the salary deduction — is the smaller of the two levers. The quieter change — indexation replacing the discount — is the one that moves the result, and in a moderate-inflation, moderate-growth decade it moves it in the buyer’s favour.

The Five-Year Exit

Plans change. The harder test is what happens if the investor must sell at year five — a job move, a rate shock, a change of circumstance. Selling costs are incurred, the loan is barely paid down, and the gain is thinner.

At five years the indexed cost base ($1,187,700) almost equals the sale price, so the post-budget investor has effectively no taxable gain and pays no CGT, while the pre-budget investor still pays roughly $43,800. Even on an early exit, the new regime is not the disaster the headlines imply — though both investors should remember that a shorter hold magnifies the drag of transaction costs and any softening in price.

The real lesson of the five-year case is simpler: property does not work in five years. Transaction costs, a barely-amortised loan and a thin early gain mean the shorter the hold, the more fragile the outcome. The ten-year frame is where the asset class earns its reputation.

The Real Constraint: Supply and Demand

Tax is the question investors ask. Supply and affordability are the questions that will actually decide returns. The Commonwealth’s housing target is 1.2 million new homes by mid-2029, pursued largely through zoning and planning reform that lets developers build at higher density — not through the government building directly. Current forecasts already point to a shortfall against that target rather than a glut.

But hold the supply question against the demand question. If only the top 7–10% of income earners can service a one-million-dollar investment property, and the new rules lift the income needed to carry one, who is left to absorb new high-density stock at that price point? Where zoning genuinely unlocks volume, the weight of supply can cap price growth for years — not because demand vanishes, 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.

For an investor, the implication is that location and scarcity matter more under the new regime, not less. The tax treatment is broadly survivable. The risk that genuinely erodes a ten-year return is buying into a segment where new supply can be switched on faster than demand can grow.

Conclusion: What This Actually Means

• The negative gearing change is real but modest over a full cycle. Losing the salary offset costs the post-budget investor about $12,400 in extra holding cost across ten years on these figures.
• Cost-base indexation is the larger lever — and it favours the post-budget buyer. By lifting the cost base with inflation, it strips most of the nominal gain out of the CGT calculation. Combined with carried-forward losses, it took the year-ten tax bill to nil in this model.
• Over ten years, the post-budget investor finished ahead by roughly $91,700 on these assumptions. The headline fear — that buying after the changes is clearly worse — is not supported by the modelling.
• Property does not work in five years. The early-exit case shows how transaction costs and a thin early gain punish a short hold under either regime.
• The decisive risk is supply, not tax. Buy where scarcity protects value; be cautious where rezoning can flood the market faster than the narrow pool of qualified buyers can grow.

The question is not whether the new rules kill property investment. They do not. The question 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?

Important Disclaimer

This document is general information only. It is illustrative modelling built on the stated assumptions and is not financial, taxation, investment or legal advice. It does not take account of any individual’s objectives, financial situation or needs.

Property values, rents, interest rates, inflation and tax law all change, and actual outcomes will differ — potentially materially — from the figures shown. The tax treatments described reflect the Alan’s understanding of announced 2026 Budget measures, which remain subject to legislation and may change. The 50% CGT discount, cost-base indexation, the 30% minimum tax rate and the negative-gearing rules are applied here on a simplified basis for comparison and do not capture every feature of an individual’s circumstances.

Before acting on anything in this document, obtain independent advice from a licensed financial adviser, a registered tax agent or accountant, and where relevant a solicitor. Weiss Real Estate and Alan Weiss accept no liability for any loss arising from reliance on this material.