Negative gearing changed. The banks are already moving. What property investors should do now
Reading time 11 minutes
by Parker Hadley
The Federal Budget has proposed major tax changes for residential property investors from 1 July 2027, including limiting negative gearing to new builds and replacing the 50 per cent CGT discount with indexation plus a 30 per cent minimum tax on gains.
That is the headline. The more immediate story is that lenders are already reacting. Capital Brief reported Macquarie has told lenders to stop factoring in negative gearing on some established investment purchases, while AFR reporting says Westpac has been reassessing some pre-approved investor loans.
If banks start tightening serviceability before the law even changes, the practical consequence for investors is simple: less room for error, more pressure on asset selection, and a much stronger reason not to buy a mediocre new build just because the tax treatment looks friendlier.
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The budget headlines are noisy enough on their own. Add a few lender reactions and the whole thing starts to feel like the investment-property version of group-chat economics. Everyone has a take. Most of them are not especially useful.
The useful bit is this. The government has proposed limiting negative gearing for residential property to new builds from 1 July 2027. Existing arrangements remain unchanged for properties held before Budget night, and future investors in established homes would still be able to offset rental losses against residential property income and carry unused losses forward. The 50 per cent capital gains tax discount is also set to be replaced by indexation plus a 30 per cent minimum tax on gains from the same date, although investors in eligible new builds would still be able to choose the current 50 per cent discount or the new regime when they sell.
That is significant enough. But from a buyer’s-agent point of view, the more interesting part is what happens before any of this even starts. If the lenders begin to move early, and it looks like some already are, then investors do not just have a tax question. They have a borrowing-power question, a strategy question and, most importantly, an asset-selection question.
At a glance
| Issue | What the budget / lenders are doing | What investors should do |
| Negative gearing | From 1 July 2027, negative gearing is proposed to be limited to new builds. Established properties bought after Budget night would no longer offset losses against wages. | Do not assume an established property still works the same way it did a month ago. Re-check strategy and cash flow. |
| CGT | From 1 July 2027, the 50 per cent CGT discount is proposed to be replaced with indexation and a 30 per cent minimum tax on gains, with transitional rules for existing holdings. | Do not let tax tail wag the dog. Asset quality still matters more than clever spreadsheeting. |
| Bank serviceability | Capital Brief says Macquarie has already changed how it treats negative gearing on some established purchases. AFR reporting says Westpac has reassessed some pre-approvals. | Treat borrowing capacity as live, not fixed. Confirm your numbers again before you chase stock. |
| New builds | New builds remain eligible for negative gearing and investors in eligible new builds keep a choice on CGT treatment. | Do not treat “new” as a strategy. Some new builds are fine. Plenty are just expensive mediocrity with better tax wrapping. |
Why the AFR story matters more than the usual policy noise
The AFR angle matters because it drags the conversation out of theory and into actual borrowing. Policy is one thing. Bank behaviour is another. Borrowers can usually wait for legislation. They cannot ignore a lender shaving borrowing power right now.
AFR reporting says Westpac told brokers some investor pre-approvals would need to be reassessed after the negative gearing changes announced in the budget. Capital Brief has separately reported that Macquarie told lenders to stop factoring in negative gearing on established property purchases in line with the new policy direction. If that becomes a broader pattern, the practical effect is immediate. An investor who thought they could comfortably buy one type of property in one type of market may suddenly be looking at a different ceiling, a different suburb and a different risk profile.
That is the part investors should care about first. The tax settings matter, obviously. But if a lender trims your usable budget now, then the buying brief changes now. You do not get to keep pretending the original plan still works because your spreadsheet liked it on Tuesday.
What actually changed in the 2026 Federal Budget
The official budget material is fairly clear on the broad settings. From 1 July 2027, the government proposes to limit negative gearing on residential property to new builds. Existing arrangements stay untouched for properties held before 7:30 pm AEST on 12 May 2026. For established homes purchased after Budget night, rental losses would still be deductible, but only against other residential property income, including future capital gains. Unused losses can be carried forward.
On capital gains tax, the budget proposes replacing the 50 per cent CGT discount with CPI-based cost-base indexation and a 30 per cent minimum tax rate on gains from 1 July 2027. The budget factsheet says gains accrued before that date keep the current treatment, while new builds keep a more generous set of options. Investors in eligible new builds would continue to access negative gearing and could choose either the current 50 per cent CGT discount or the new indexation-plus-minimum-tax model when they eventually sell.
The detail that matters here is the definition of a genuinely eligible new build. The tax explainer says the exemption is meant to support new supply. That includes homes constructed on vacant land and projects where demolition creates a greater number of dwellings. Knock-down rebuilds or substantial renovations that do not increase supply do not qualify. Nor does a property simply stay eligible forever because it was once new. Subsequent purchasers do not inherit the same treatment.
Why investors should care more about serviceability than headlines
A lot of investors will read the budget change and jump straight to the tax effect. Fair enough. But in the short to medium term, serviceability is usually the bigger issue. If lenders trim or remove negative-gearing add-backs when assessing established-property loans, borrowing capacity can tighten before the tax law itself changes.
That changes behaviour. Buyers who were already stretching into an established townhouse in a middle-ring Brisbane or Geelong pocket may suddenly feel nudged toward a newer apartment in an outer corridor because the spreadsheet says the tax treatment is friendlier. That is where people get themselves into trouble. The tax treatment can improve the after-tax picture. It does not magically improve the asset.
From my side of the table, this is the real investor danger. Not the policy itself. The overreaction to it. Investors start solving for the easiest line item to optimise and forget that the property still needs tenant depth, resale depth, decent maintenance characteristics and a reason for future owner occupiers to care.
Why “just buy new” is not an investment strategy
The budget is plainly trying to push more investor demand toward new supply. Fine. But a tax nudge is not the same as an investment thesis. Some new builds are perfectly good assets. Plenty are not. The trick is being honest enough to tell the difference before you sign the contract, not after the first AGM, defect notice or underwhelming valuation.
The problem with a lot of investor-targeted new stock is not that it is new. The problem is that it is often sold as if newness alone solves the whole investment case. It does not. Oversupplied apartment pockets, generic house-and-land packages, weak owner-occupier demand, compromised layouts and unrealistic rental assumptions were all bad ideas before the budget. They are still bad ideas now, even if the tax treatment is more generous.
Kevin version: if your main reason for buying something is that the tax settings look nicer than the asset itself, you are probably shopping backwards.
What smarter investors should do now
| 1. Re-check your borrowing capacity | Do not assume a pre-approval or broker conversation from before Budget night still reflects what a lender will do today. If you are buying established property, check again. |
| 2. Separate tax treatment from asset quality | A stronger deduction does not fix weak scarcity, poor tenant appeal, high body corporate risk or lazy suburb selection. |
| 3. Prioritise boring, proven stock | If bank policy is moving and confidence is shaky, this is not the moment to become a property genius in your own head. Favour established metro assets with obvious resale demand. |
| 4. Treat “new build” as a filter, not an answer | There may be excellent new-build opportunities. There are also a lot of glossy dead ends. Keep the same discipline you would apply to any asset. |
| 5. Keep a buffer | If borrowing gets tighter and tax settings get less forgiving for established stock, the right buffer matters even more. The goal is to stay in control, not be one vacancy away from a bad decision. |
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What this means for established versus new in practice
If you were already planning to buy established property, that strategy is not suddenly dead. But the margin for error may be smaller. You may need to buy below your previous maximum, hold a bigger cash buffer or be more selective about what you will tolerate on condition, strata or renovation risk.
If you were already planning to buy new, you now need to be even more careful about why. The right reason is not simply ‘the government likes this more’. The right reason is that the property genuinely adds supply, sits in a market with real tenant and resale demand, and still makes sense when the tax sugar-hit eventually fades into the background.
In other words, the budget may tilt the playing field. It does not remove the need for judgement. If anything, it increases it.
Kevin’s rule
Do not let a tax policy bully you into buying a mediocre property.
If the banks are already moving, the answer is not to panic-buy the nearest qualifying new build and hope the tax settings save you. The answer is to tighten the brief, re-check the numbers and buy the best asset you can still comfortably hold.
That usually means demand, scarcity, liveability, sensible maintenance and an obvious future buyer. Not a glossy brochure, not a rental estimate doing cartwheels, and not a strategy built entirely around what the tax treatment might look like in 2028.
Frequently asked questions
Has negative gearing already been abolished for established properties?
No. The 2026 Federal Budget proposes that from 1 July 2027, negative gearing for residential property will be limited to new builds. Existing properties bought after Budget night would still allow losses, but those losses could only be offset against residential property income, not wages. The measure would still need legislation.
What has Westpac done?
AFR reporting says Westpac told brokers that some pre-approved investor loans would be reassessed after the budget changes. The important point for buyers is that lender policy can move before tax law does.
What has Macquarie done?
Capital Brief reported that Macquarie told lenders to stop factoring in negative gearing on some established-property purchases in line with the new policy direction.
Does this mean investors should only buy new builds now?
No. New builds may keep more favourable tax treatment, but that does not automatically make them the better asset. Investors still need to judge supply, tenant depth, resale depth and overall quality.
Are existing property owners affected?
Properties held before 7:30 pm AEST on 12 May 2026 keep current negative gearing arrangements under the budget proposal. The CGT reforms are also prospective, with pre-1 July 2027 gains treated under the existing framework.
What should investors do first?
Re-check borrowing capacity, confirm how your lender or broker is treating serviceability now, and make sure the asset still works without relying on overly generous assumptions.
Conclusion
The budget changes are important. But for active buyers, the more immediate story is the lender reaction now showing up around them.
If serviceability gets tighter before the law even changes, the investors who do best will not be the ones who react fastest. They will be the ones who think most clearly. That means buying with a buffer, resisting the urge to call every new build a solution, and choosing the kind of property that still makes sense when the policy noise settles down.
The tax settings matter. The loan matters. But in the end, the thing you actually own still matters most.
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