It has been six weeks since the 2026 federal budget announced the most significant changes to negative gearing and capital gains tax in decades. The detail of what changed has been widely covered. What hasn't been assessed is what's actually happened since — to property prices, investor activity, the rental market, and borrowing capacity. This article pulls together the current data, explains the CGT indexation change in practical terms, and sets out what investors in each situation should do now.
If you want a full explainer on the rules themselves, see our earlier articles on the budget decision and borrowing capacity impact. This article focuses on the market effects and what to do.
What's Happened to Property Prices
The Cotality May 2026 Home Value Index — the first full month after the budget — showed dwelling values essentially flat nationally. But the city-level picture is more telling:
Capital City Price Movement — May 2026
| City | Monthly change | Annual change |
|---|---|---|
| Sydney | −0.9% | +4.2% |
| Melbourne | −0.8% | +1.1% |
| Brisbane | +0.9% | +19.7% |
| Adelaide | +0.5% | +12.1% |
| Perth | +1.5% | +26.0% |
| National | Flat | +8.8% |
Source: Cotality Home Value Index, May 2026
The Sydney and Melbourne falls are notable. Both cities have a higher concentration of investment properties and a higher proportion of investors in the buyer pool — so the budget's announcement effect has landed harder there. Brisbane, Adelaide, and Perth continued to hold up — their markets are less exposed to investor-driven demand and benefit from stronger owner-occupier fundamentals.
Auction clearance rates tell the same story in the southern capitals. The week ending 13 June 2026 saw a national average of 49.8% — well below the 65.0% from the same week last year. Sydney cleared 62.0% (down from 73.7% a year ago), and most capitals are now sitting below the 60% threshold where buyers hold meaningful negotiating leverage.
CBA's economics team has revised its 2026 national price growth forecast from 5% to 3%, reflecting the budget's impact. JP Morgan estimates a 1–3% price level drag from the negative gearing changes. Neither is a crash scenario, but it is a genuine headwind that is already showing in the data for Sydney and Melbourne.
The key caveat: it is still early. The rules don't take full effect until 1 July 2027. Much of what we're seeing now is announcement effect — investors reassessing, some pulling back from purchases, some deferring. The hard data on investor lending volumes won't be available until the ABS releases June quarter lending indicators in August 2026.
The CGT Change — and Why It's Worse Than It Looks for Most Investors
The most misunderstood part of the budget is the CGT change. Here's what actually changed:
Old rule (still applies to properties bought before 12 May 2026)
Hold for 12+ months → pay tax on 50% of your capital gain, at your marginal rate.
New rule (for gains accruing from 1 July 2027 on properties bought after 12 May 2026)
- Your cost base is indexed to CPI each year, reducing the nominal gain
- A 30% minimum tax rate applies — if your marginal rate is below 30%, you pay 30%
- If your marginal rate is above 30%, you pay your full marginal rate on the indexed gain
The critical point most commentary misses: the 30% minimum is a floor, not a flat rate. A property investor on a 39% marginal rate — taxable income above $135,000 including the capital gain — pays 39% on their indexed gain, not 30%. The 30% minimum only benefits investors whose income is low enough that their marginal rate falls below 30%. For most active property investors, it provides no benefit at all.
Here's why this matters. The old system taxed 50% of the nominal gain at your marginal rate. The new system taxes 100% of the real gain (nominal gain minus CPI) at your full marginal rate. For a typical property investor in the 39% bracket, the old system was better in nearly every scenario.
Worked Examples — $700,000 property, 2.5% annual inflation, 39% marginal rate
Example 1: 5% annual growth, held 5 years
| Scenario | Taxable gain | CGT bill (39%) |
|---|---|---|
| Old — 50% discount | $97,000 | $37,830 |
| New — indexation | $102,000 | $39,780 |
Sale price ~$894,000 | Nominal gain ~$194,000 | Indexed cost base ~$792,000 | 50% discount saves ~$1,950
Example 2: 5% annual growth, held 10 years
| Scenario | Taxable gain | CGT bill (39%) |
|---|---|---|
| Old — 50% discount | $220,000 | $85,800 |
| New — indexation | $244,000 | $95,160 |
Sale price ~$1,140,000 | Nominal gain ~$440,000 | Indexed cost base ~$896,000 | 50% discount saves ~$9,360
Example 3: 8% annual growth (high-growth market), held 5 years
| Scenario | Taxable gain | CGT bill (39%) |
|---|---|---|
| Old — 50% discount | $164,500 | $64,155 |
| New — indexation | $237,000 | $92,430 |
Sale price ~$1,029,000 | Nominal gain ~$329,000 | Indexed cost base ~$792,000 | 50% discount saves ~$28,275
The pattern is consistent: for investors at the 39% marginal rate, the old 50% discount outperforms indexation in all three scenarios. The advantage of the old system grows with the rate of property price growth — meaning the change is harshest precisely in high-growth markets like Sydney, Brisbane, and Perth, where the investment case was strongest under the old rules.
The new system may offer a marginal benefit for lower-income investors (those whose marginal rate falls below 30% after including the capital gain) holding over very long periods — but this is a narrow group that does not describe most active property investors.
Note on grandfathering
Properties bought before 7:30pm on 12 May 2026 keep the 50% CGT discount indefinitely. Properties bought between 12 May 2026 and 30 June 2027 have a split: gains accrued before 1 July 2027 retain the 50% discount; gains from that date use the new indexation method.
What's Happened to the Rental Market
Despite warnings of a rental crisis worsening under the changes, the short-term rental data shows little movement — which was expected. The rules don't take effect until July 2027, and most investors with grandfathered properties have no reason to sell.
National rental vacancy sits at 1.5% (Cotality, May 2026) — well below the 2.5–3.0% historical average that indicates a balanced market. Annual rent growth is running at 5.9% nationally, significantly above wage growth of 3.3–3.4%. This is the pre-existing condition that the budget changes will eventually interact with.
Treasury modelling puts the direct rental impact at less than $2 per week increase in median rent. Most independent economists dispute this as too conservative — their argument is that any reduction in investor supply, even gradual, into a market already running at 1.5% vacancy will have outsized rent effects. The real impact will become clearer in 2027 and 2028 as the rules start affecting purchasing decisions.
The key dynamic to watch: whether investors begin selling in 2026–27 ahead of the July 2027 implementation date, and whether that supply enters the owner-occupier market or exits the rental pool entirely.
The New Build Opportunity
The one area where the budget creates a genuine opportunity for investors is new residential construction. Negative gearing remains fully available on new builds from any date — including properties bought from 1 July 2027 onwards. And at the point of sale, investors in new builds can choose between the 50% CGT discount or indexation, whichever produces the better outcome — a flexibility not available to buyers of established properties after 12 May 2026.
This is a meaningful structural advantage. A newly built property purchased today gets:
- Full negative gearing during the construction and rental period
- Choice of CGT treatment at sale — pick the better of 50% discount or indexation
- Higher depreciation deductions (newer fixtures, full Division 43 eligibility from construction completion date)
Building approvals for April 2026 were down 3.4% overall, suggesting the new build sector has not yet seen a demand surge from investors pivoting away from established properties. With the 1 July 2027 threshold still 12 months away, the pivot — if it comes — is more likely to show in late 2026 and early 2027 data.
What Each Group of Investors Should Do Now
Group 1: Properties bought before 7:30pm on 12 May 2026
You are fully grandfathered. Your negative gearing continues indefinitely under the old rules. Your 50% CGT discount is locked in. The budget changes do not affect your existing portfolio.
What to do: Nothing changes for these properties. Focus on rate management — with three rate hikes already landed in 2026 and markets pricing a 50% chance of more in August, reviewing your investment loan rate is the most immediate lever. Also review your loan structure (offset vs redraw) before June 30 — see our EOFY article for the specifics.
Group 2: Established investment property bought 12 May 2026 – 30 June 2027
You have transitional treatment. You can negatively gear against all income until 30 June 2027. From 1 July 2027, losses carry forward against property income only — not salary. For CGT, gains up to 1 July 2027 retain the 50% discount; gains from that date use indexation.
What to do: Model your cash flow position from 1 July 2027 onwards. If the loss carry-forward rule significantly impacts your after-tax position — particularly if rental income doesn't cover the carrying cost — factor this into your hold/sell decision well before 2027. Speak to your accountant now, not later.
Group 3: Considering buying an established investment property after 1 July 2027
You lose negative gearing on established properties — losses carry forward against property income only. You lose the 50% CGT discount. As the worked examples above show, for most investors at a 39% marginal rate, the new indexation system produces a higher CGT bill in almost every realistic scenario.
What to do: Run the numbers carefully on the new CGT regime before committing — particularly in high-growth markets where the gap between the old and new systems is largest. Model the borrowing capacity impact. Consider whether a new build achieves a similar investment outcome with significantly better tax treatment.
Group 4: Considering buying a new residential build
You retain full negative gearing. You get CGT choice at sale. You get better depreciation. You are the explicit target of the policy — the government wants investor capital flowing to new construction.
What to do: Assess developer quality carefully — off-the-plan risk (construction delays, valuation gaps at practical completion) is a real consideration, particularly with building costs still elevated. Speak to a broker about how new build lending works differently from established property lending — progress draw-down loans, valuation timing, and lender appetite all differ.
The most important date in this article: 1 July 2027. That is when negative gearing restrictions and the new CGT regime take full effect for new purchases. There is a 12-month runway. Use it.
Tax disclaimer
The content in this article is general information only and does not constitute tax or financial advice. Every investor's situation is different. Speak to a registered tax agent or accountant before acting on any of the strategies above.
Written by Amit Narang, Mortgage Broker | Credit Representative 558902 of Outsource Financial Pty Ltd (ACL 384324)
Sources: Cotality/PropertyUpdate, Home Value Index May 2026; Domain, auction clearance rates week ending 13 June 2026; SQM Research, vacancy rates May/June 2026; ABS, Building Approvals April 2026; ABS, Lending Indicators March quarter 2026; CBA Economics, 2026 Budget: Updated housing outlook; Treasury, 2026–27 Budget — negative gearing and CGT factsheet; Domain, rental impact analysis.
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