What the 2026 Budget Changes Mean for Property Prices, Investors, Buyers and Renters

The 2026 Federal Budget announced on the 12 May 2026, has changed the property conversation.

Negative gearing is being limited. Capital gains tax treatment is changing. Trusts are under more scrutiny. Investors are suddenly doing what investors always do when the rules change: recalculating, hesitating, defending old decisions, and pretending their spreadsheet is more objective than their ego. But here is the bigger point.

Tax policy does not buy property. Borrowing capacity does.

That is why we have to look at the Budget changes together with serviceability, affordability, rental demand, housing supply, buyer psychology, and market segmentation, just to answer one simple question:

Or, maybe, the better question should be:

Because Australia, including Melbourne, does not have one property market. A quality family home in a tightly held school zone will not behave the same way as a generic investor-focused apartment in an oversupplied or overpriced precinct.

Same country. Different Property. Different Location. Different dynamics.

First, what has actually changed?

The Government has announced major reforms to negative gearing and capital gains tax. These changes are designed to reshape where investor money flows, away from established dwellings and towards new housing supply.

But let’s be clear: negative gearing is not dead. It has changed.

1. Negative Gearing Changes

From 1 July 2027, negative gearing benefits will be limited to new residential properties.

Existing arrangements will be grandfathered, which means the changes do not affect current investors who already hold negatively geared properties. In most cases, current investors will keep their existing tax treatment for as long as they continue holding those properties.

That matters.

It gives many current investors a strong reason to hold rather than sell. If they sell, they may lose that slightly more favourable tax position. So instead of creating a flood of investor listings, these changes may actually encourage some existing investors to sit tight, tightening supply in the established properties.

For established residential properties purchased after the Budget night cut-off on 12 May 2026, losses will no longer be deductible against salary and other personal income in the same way. Instead, those losses may be carried forward and used against future residential property income or capital gains. So again, negative gearing is still alive, but it has been tweaked.

And this changes the numbers for future investors.

2. Capital Gains Tax (CGT) Changes

The current 50% capital gains tax discount is also being replaced with an inflation-based indexation approach.

New-build investors will receive more favourable treatment compared with investors buying established dwellings. In simple terms, the Government is trying to make new residential property more attractive to investors than established property.

The Government wants less investor demand chasing existing homes, and more investor capital helping to create new housing supply. That is the idea, but whether the market behaves that neatly is another question.

When you read between the lines and understand the indexation method, the new CGT indexation method can penalise properties that outperform inflation, and is a better calculation for properties which underperformed. Effectively, it is hitting the Brisbane, Perth, Adelaide market and their investors. These markets have had explosive growth in recent years, outpacing inflation. Whereas the Melbourne market had performed that well. Will this then redirect attention to the Melbourne market as well?

If you need more information of the changes and some myths and misinterpretations around these changes, head over to our other articles where we explain in more details what was changed, and their implications.

• 2026 Budget Changes

• 2026 Budget Myths and Mis-interpretations

What This Really Tells Us

There is also a quiet admission in these changes. Despite years of investors being painted as the problem, the Government clearly understands one uncomfortable truth:

If investor activity is killed completely, the rental market gets hit. The Government is not building enough homes on its own, and they are not going to. Private investors will continue to play a major role in providing rental accommodation.

So the Government is not trying to remove investors from the market altogether. It is trying to redirect them. This means less established property speculation, and, more new housing supply.

That is the intention.

The Missing Factor 1: Serviceability

The Budget changes will influence investor behaviour. But serviceability will decide how much buyers can actually pay. Investors need to understand this.

A buyer may want to pay $1.2 million. But when their mortgage broker say they can borrow only enough to pay $1.05 million. That $150,000 gap is not solved by confidence, mindset, or motivational property podcasts.

What affects the investor's Serviceability?

Serviceability is affected by:

• interest rates

• income

• living expenses

• household debt

• bank assessment buffers

• rental income shading

• credit card limits

• dependants

• loan-to-value ratio

• tax treatment of investment losses

This is why the Budget changes are landing on a market that was already under pressure. Cotality’s May 2026 housing analysis says Australia’s housing market is close to a downturn, with higher interest rates and stretched affordability weighing on demand. It also notes Sydney and Melbourne are already in the early stages of decline, while growth is slowing across the mid-sized capitals.

So the Budget changes are not happening in isolation. They are being added to a market already dealing with affordability stress. That makes the impact more powerful in some segments, but still unlikely to create a broad crash by itself.

The Missing Factor 2: Demand and Supply

Just like any free market, house prices are affected by Demand and Supply. When things are scarce, but demand is strong, prices go up. Buyers are willing to pay more to buy that.

Sellers Are Not the Devil

Sellers can demand $2million for their $1million dollar hour, and if no buyers see value in that asking price and are not prepared to pay that, there is no deal. The property stays unsold until the price either drop or demand catches up and buyers start seeing value in the the $2million price tag.

Investors Aren't the Devil Either

Most disciplined investors buy properties based on its ROI, yield, or growth potential. Investors' buying decision is driven strictly by numbers. They either expect the price to grow x% in y years, or they are expecting at least z% rental yield. Now, because these numbers are directly tied to the property's purchase price, they will not be paying for overpriced properties. In other words, They are paying no more than market price for properties they buy.

There is also a hidden but obvious benefit to investor purchases. Investment properties adds to the properties in the rental market. Most investors are sensible. And sensible investors are not going buy a million dollar asset, lock it up while waiting for prices to rise. They will be leasing the property in the rental market. And it is often at a much lower price, than if the renter were to buy and live in it. Investors know the renters can only afford that much, and most would not risk having an empty property when they priced their rents too high. The government recognised that, and are helping investors provide lower-priced rental properties by a mechanism called negative gearing. It is not subsiding investors, it is just helping investor keep rental prices low, so renters can afford a lower priced rental property. Without these negative gearing, rents will need to be higher, to justify the investment and risks.

Home Buyers Are Emotional Buyers

From experience, home buyers often purchase the properties because there is something in the property they want. They want to be in good school zones, near shops, easy access to public transport, near city, and they want that "Feel Good" emotional feeling when they are in the property. Home buyers are often the emotional buyers who will pay slightly more than the next highest offer, so they can buy the property. They often do not mind pushing prices slightly higher to buy a property they have an emotional attachment with. This is important, as unlike renting, they will be stuck with the property for many more years to come.

Sales agents know home buyers are driven by emotions. And their jobs are to "encourage" the buyers emotions. Most buyers hate this as this usually lead them to stop thinking sensibly and overpay. This is why buyers who understand this dynamics would prefer to engage a buyers agent as a go-between to filter these emotions. And statistics show this strategy works. We saved a home buyer half a million from their home purchase some years back. And had recently saved a buyer $130k.

Will property prices crash?

No, I do not expect a broad property price crash from these Budget changes alone. A real crash usually needs something more severe, such as:

• rising unemployment

• forced selling

• credit tightening

• financial system stress

• major oversupply

• a sharp interest rate shock

• widespread mortgage distress

Tax changes can reduce demand, especially investor demand, but they do not automatically force large numbers of owners to sell.

Commonwealth Bank (CBA) expects the Budget changes to make established investment properties less attractive and estimates prices will be about 3% lower than they otherwise would have been, with a smaller impact on rents. CBA also revised its dwelling price growth forecast to 3% to December 2026, down from 5%, while leaving its 2027 forecast at 3%.

That phrase matters: "Lower than they otherwise would have been."

It does not necessarily mean prices fall 3%. It means prices rise more slowly. Some markets may go sideways. The weaker investor-heavy stock will falls, while quality owner-occupier stock still rises.

So no, this does not look like a blanket property crash. It looks more like a market split.

The market will not move as one

The Budget changes will affect different property types very differently. The impact will depend on:

• how much investor demand exists in that segment

• whether the property is new or established

• whether the property has owner-occupier appeal

• rental yield

• land value

• scarcity

• local supply

• borrowing capacity of likely buyers

• affordability pressure in that price bracket

• whether buyers are emotionally or financially driven

This is where sweeping statements becomes useless. A $550,000 investor-focused apartment, a $900,000 townhouse, a $1.4 million family home and a $2.5 million school-zone property are not the same market, and they will not behave to these changes

1. Established Investor Properties will be Affected

Existing investors are protected from the negative gearing changes, but future capital gains from 1 July 2027 may still fall under the new CGT rules. That means current investors are not completely untouched, although the impact will only be realised when they eventually sell.

The biggest loser is established properties that only become attractive because of tax treatment and hoped-for capital growth. This includes:

• investor-focused apartments

• generic townhouses

• low-land-content dwellings

• properties with high owners corporation fees

• low-yield properties

• high-maintenance rentals

• properties in areas with heavy investor ownership

• assets that only made sense because of negative gearing

Buyers of these established properties will be asking a very fair question:

This question alone will immediately reduce demand in certain markets. The weaker the property fundamentals, the bigger the problem. A CBD apartment which is already facing a difficult sale, will take a lot longer to sell, or sell at a price (usually much lower) that makes sense to the new investor. Resale prices of brand new CBD apartments which are currently selling at 20-30% loss, will have to be priced lower.

Many of these average assets will be exposed, not because they suddenly became bad properties, but because they were never that good in the first place. The current tax system was just sweetening the bad deal.

2. New Builds Will Attract More Investor Attention

Because the negative gearing rules now favour new residential properties, some investor demand will likely move toward new builds. Tax-benefit-sensitive investors will now be focusing on:

• new apartments

• townhouses

• house-and-land packages

• development pre-sales

• growth corridor properties

This is exactly what the Government wants: push investor capital toward creating new supply instead of bidding up existing homes.

But there is a trap. There is a reason why experienced investors avoid investing in these new properties.

New Builds can be a Trap

For a long time, new builds have always been affordable. There has never a supply issue with new builds. But there is a demand issue. Not many buyers are buying them.

While first home buyers felt investors ("investors" because the mass media narrative says so) are beating them to the $950k house, many sub-$700k properties are available for immediate purchase, with little to no competition. You can buy one, and some vendors are more than happy to give you an incentive to buy them! And there are reasons why these properties are untouched:

• Weaker Infrastructure and Amenities

• High rental vacancies

• Weak land content

• body corporate costs

• Usually oversupplied

• Remote locations, no long-term buyer demand

With the change in negative gearing rule, investors will be attracted to these new builds, but investors should proper due diligence. The negative gearing tax benefit does not turn a bad asset into a good one. It just makes the bad asset look prettier in the glossy brochure.

Honest Buying Advice:

Do not be attracted by the negative gearing rule. It may attract you to buy the oversupplied apartment, or faraway house. When you sell, your "New Build" becomes an established and the investor taking over your property will not enjoy the Negative Gearing benefit. They will price their offer accordingly.

3. Blue-chip Owner-Occupier Homes Will Be More Resilient

These tax changes are less likely to affect quality owner-occupier homes. Quality family homes in strong owner-occupier suburbs should hold up better because most buyers are not purchasing them for negative gearing or tax benefits. They were bought for:

• school zones

• land

• lifestyle

• family needs

• scarcity

• long-term security

• location

• emotional attachment

• generational wealth

A family trying to buy into Glen Waverley, Mount Waverley, Balwyn, Camberwell, Doncaster, Kew, Brighton, Box Hill or other tightly held suburbs is not sitting at the dinner table obsessing over the new negative gearing rules or how the CGT is calculated. Taxes are not the reasons why they buy it. They want the right home, in the right location, and for many other long-term reasons. That is a very different type of demand.

While investors may become more cautious because of affordability, serviceability and tax treatment, buyers and investors in the blue-chip owner-occupier market are often more adaptable. If their borrowing capacity is reduced, they do not leave the market. Many simply adjust their target.

For example, an investor or buyer who was looking at a $3 million Balwyn home but finds their serviceability restricted to $2.5 million may not disappear. They may simply move their search to a $2.5 million Glen Waverley school-zone home, or another premium family in Mount Waverley that fits their budget.

That is why the $1 million to $3 million prime Melbourne property market is unlikely to run out of buyers overnight.

There is still strong demand from:

• high-income local families

• professional couples

• upgraders

• interstate buyers

• overseas buyers

• migrants

• school-zone buyers

• buyers with equity

• long-term wealth-focused owner-occupiers

That does not mean every blue-chip property will rise. Compromised homes in blue-chip locations will still struggle, as usual. A bad floorplan, main-road position, bad orientation, steep block, easement issue, poor renovation, or unrealistic vendor expectation can still hurt the result.

But good homes in quality locations will continue to attract competition.

Here's how the property demand works:

Tax changes reduce investor demand.

Serviceability limits owner-occupier demand.

Scarcity protects quality assets.

That is the triangle.

4. Lower-priced Established Homes May Become More Accessible, but May Not Be Cheap

That is the good news is, First-home buyers may benefit from reduced investor competition in some established property markets. But the not-so-good news is that good established properties will be rarer. In fact, the CGT and negative gearing changes will encourage owners of quality established properties to KEEP them. Why sell a quality property and be put onto the new negative gearing rule?

The first home buyers' struggle to get decent lower priced properties in established areas is expected to get tougher. And when quality stock gets lesser, while demand remains or increase, prices go up. Quality houses in high-demand locations are expected to rise in price, not necessarily a drop in price.

On the other hand, lower-priced properties with poor fundamentals (aka bad property) are expected to get cheaper. These had never had a supply problem anyway. So, first home buyers looking at affordable low-priced established homes will likely end up with a property with poor fundamentals.

How will current property investors respond to the 2026 Budget?

This is the key behavioural question. Not what investors should do. What they probably will do.

1. Most Existing Investors Will Hold

Because existing negative gearing arrangements are grandfathered, many current investors will hold their existing properties, especially if it is a high quality investment property. That creates a lock-in effect, locking buyers out of good properties.

If they keep the property, they preserve the old tax treatment. If they sell, they may lose that advantage and then face the new set of rules, which is usually less favourable, if they buy another established investment property later.

CBA expects housing turnover (supply) to fall initially because grandfathered investors have a stronger incentive to hold. So despite the dramatic mass media headlines, I do not expect a flood of new investor listings across the board.

Many investors will, in fact, do nothing, because there are no changes to the tax rules if they do nothing and do not sell. And psychologically, many investors of these bad properties would prefer the low-effort status quo path anyway. They are usually the ones who jump onto social media to crowd source for the Top Boom Locations, or they copy their friends, because when their friends had bought one, it automatically makes a location feels good. Low effort investment strategy plan is a plan for long term pain.

2. Some Investors Will Sell Weak Assets

The Budget changes will make proactive investors review their portfolios more carefully.

Investors will look at:

• rental yield

• land tax

• owners corporation fees

• maintenance

• vacancy risk

• insurance

• interest costs

• capital growth history

• future growth outlook

to determine if the property still deserves a place in the portfolio

Weak assets will be reviewed first, and this means some investors will start selling:

• poor-quality apartments

• low-yield properties

• high-maintenance houses

• properties in weaker oversupplied rental markets

• properties where the cash flow pain is no longer justified

But not everyone will be dumping everything at once. Property investors tends to be very good at holding onto average assets while telling themselves “it is a long-term play”. This also let them keep them their "x properties" bragging rights at BBQs.

Sometimes they are right, but most of the times, they are just emotionally attached to a bad purchase.

3. Highly Leveraged Investors Will Become More Cautious

Serviceability (or the lack of it) will be a major brake on investor activity. Under the new rules, some investors buying established properties may not receive the same lending benefit from negative gearing assumptions. The new rules will reduce borrowing power for some investors, especially those who are already highly leveraged or rely heavily on negative gearing strategy for the next purchase.

The result? These investors will:

• pause

• refinance first

• reduce debt

• build buffers

• delay buying

• buy cheaper

• buy with higher yield

• consider new builds

• look at commercial property

• compare property with shares, ETFs and super

• stop buying altogether unless the numbers are compelling

Aggressive investor with strong income, equity and borrowing capacity will still move, while the marginal investor will hesitate. That hesitation matters, especially in investor-heavy markets. Investor interests in these markets is expected to drop.

How Will New Investors Respond to the 2026 Budget?

New investors will become more numbers-focused. They have to. The new negative gearing and CGT changes means it is very unforgiving to investors of bad properties. The old formula of relying on negative gearing to get ahead becomes a lot weaker:

For established properties purchased after the cut-off, the ability to offset losses against salary or other personal income no longer works the same way. The property now has to work harder on its own merits. But here is the next problem.

Spruikers and project marketers will push brand-new properties even harder because negative gearing still applies to new builds. Technically, they may not be wrong.

But investors need to ask:

The next buyer may not receive the same benefit once the property is no longer new. A savvy future buyer will look past your original tax strategy and assess the asset itself. They will ask:

• Does the cash flow work?

• Is the rental yield strong enough?

• What is the land tax exposure?

• What is the vacancy risk?

• Is the property sensitive to interest rate changes?

• Does the loan still service if conditions change?

• Are the capital growth fundamentals strong?

• Does the property still make sense without tax incentives?

This is actually a good thing. Too many investors have bought mediocre property because tax treatment softened the pain. A poor asset could look tolerable because the tax system helped carry the loss. That does not make it a good investment. It just makes the mistake less obvious.

For years, opportunistic developers and project marketers have used this to sell overpriced, substandard properties in oversupplied locations.

“Look at the depreciation.”

“Look at the tax benefit.”

“Look at the rental guarantee.”

Beautiful brochure, but ugly fundamentals.

Now the asset has to stand more on its own merits. That is healthy. But some investors will still chase new builds purely because the tax treatment looks better.

While the savvy investors are buying better assets, the dangerous investors will chase tax benefits from project marketers with glossy brochures, optimistic rental projections and a suspiciously perfect growth story.

That group needs supervision — preferably from someone with a calculator, market experience, and a nonsense detector.

How Will Owner-Occupiers Respond to the 2026 Budget?

Owner-occupiers will remain active. Nothing has changed for owner-occupiers. Affordability will shape behaviour as usual.

They will:

• become more cautious and avoid overextending

• focus harder on repayment comfort

• walk away from compromised properties faster

• prioritise lifestyle and school zones

• compete strongly for quality homes

• become less forgiving of bad streets

The days of buyers blindly stretching for anything with a roof are likely to soften in some less established areas. Quality homes will still attract competition, and competition is expected to get a lot tougher.

Why?

Because supply is further limited and good homes are harder to come be, as current owners hold on to quality properties, reducing quality stocks in the market.

• A-rate properties will still perform.

• B-grade properties may go sideways.

• C-grade properties will slide.

How Will First-Home Buyers Behave?

First-home buyers may get a better chance in some segments. They may face less investor competition for established properties, especially lower-priced apartments, units and houses, in over supplied locations.

But if they believe they can pick up a quality inner city property for cheap, they might have to keeping waiting. With less quality properties coming into the market, and a never ending demand for them, they will get the same "outpriced" feeling. The new negative gearing and CGT changes does nothing to improve this feeling. It will, in fact make it worse. Good properties will be harder to come by.

If they are serious about home ownership, they might have look further, in locations which currently do not have supply issues. But what the budget did not mention is, even these locations, which used to be cheaper, will be more expensive, as investors are now attracted to them. First home buyers will need to expect to pay more to buy them, due to the higher competition.

So, while these new tax changes does not magically make a $1 million home affordable for someone approved for $750,000. It will likely cause increased competition for these new house and land packages, driving prices up. Just like any government supported incentives, instead of helping first home buyers, these changes will in fact make it harder for first home buyers.

The Budget still assumes strong population growth and continued net migration, which will keep adding pressure to housing demand, especially in major cities. And population growth without the corresponding increase in housing supply will put pressure on housing demand, pushing prices up, making buying the first home harder.

How Will Upgraders Respond to the 2026 Budget?

Upgraders are very important, especially in Melbourne’s family-home markets. They might have equity, but they are still challenged by current owners holding onto good properties.

They will also face higher prices, and if it does not make financial sense for them to upgrade, they will delay the plan or not do it at all, creating another lock-in effect.

So in quality family suburbs, we may see limited supply because owners are reluctant. The limited supply will often lead to higher prices, even when buyer demand softens.

This is why high-quality owner-occupier areas may remain more resilient than the headlines suggest.

What is the Effect of the 2026 Budget Changes to Renters?

Renters are unlikely to get major relief in the short term. They may, in fact, be worse off.

That may sound unfair, but it is the likely outcome. Rents are driven by rental supply and tenant demand. Good locations will be more expensive to rent, and harder to come by, while rent in locations where no renter wants, such as growth corridors, new estates will soften further.

Right now, the rental market is still tight. Cotality’s May 2026 analysis says affordability pressure is already weighing on housing demand, and its recent housing data has continued to show tight rental conditions across many markets.

The Budget changes may affect renters in two opposite ways, depending on the market conditions.

1. Possible positive effect for renters

If investor money shifts into new housing, the rental pool will increase, and rental supply could improve, leading to less competition for rental properties and thus, lower rent. But this will not happen overnight. There will be a lag of at least 2-3 years, before significant changes can be noticed.

This lag is due largely to time needed for planning, financing, construction, etc. Councils take even more time, because apparently paperwork always needs a spiritual journey to the netherlands. So even if the policy works, renters may not feel relief quickly.

Where will the new rental supply be?

The more important question is, where will these new supply of rental properties be? New estates, of course. That's where investors will be attracted to from now on. Do they current have a rental supply issue right now? No. In many new estates, vacancy rates are as high as 4-5%. Every second house is available for rent, and renters are not short for choice. But why are renters do not want them, due to the location.

2. Possible negative effect for renters

When investors buy fewer established rental properties, and some existing rental homes are sold to owner-occupiers, the number of rental properties in some suburbs WILL shrink. That is especially important for family trying to get rental properties in established suburbs with good schools and amenities.

You cannot easily create more detached family homes in Glen Waverley, Mount Waverley, Doncaster, Balwyn, Camberwell or similar areas. If investor-owned family homes are sold to owner-occupiers, renters looking for family homes in those areas may face even tighter supply. And the law of demand and supply say, high demand + low supply = higher rental prices.

So the rental impact will not be uniform.

• Apartment renters and renters renting in new estates with new supply may eventually benefit, it will be easier to get a rental property. Increased supply = lower rent, as these places never had high demand anyway.

• Family renters in established suburbs may face more pressure. And the law of demand and supply say, high demand + low supply = higher rental prices.

  
  

What Do the Changes Mean to Rental Prices?

Rents are NOT expected to fall across the board. In fact, rent is expected to RISE in established suburbs with good amenities.

So, this is how rent prices could play out:

• rent in established homes continue rising

• supply of rental family-home with good amenities and fundamentals gets less, and rent is likely to rise faster

• apartment rents depend heavily on new supply

• growth corridor (new estates) rents depend on infrastructure and population flows

• rents in current high vacancy markets is expected to slide.

There is also a practical limit to rent increases. While landlords may want to increase rents, tenants can only pay so much. If rents rise faster than incomes, renters will likely respond. We are already seeing tenants reduce rental costs by:

• sharing homes

• moving further out

• delaying moving out of family homes

• accepting smaller dwellings

• relocating to cheaper suburbs

• leaving expensive markets altogether

So rents may stay under upward pressure, but affordability will eventually limit how much more landlords can extract. The market can be brutal, but tenants have to be ready to move. As they say "vote with your feet".

Will Property Prices Rise, Fall or Stay the Same?

The answer is yes. Prices will change. But different segments will do different things.

Prices may fall or underperform in:

• investor-heavy apartment markets

• poor-quality established units

• high owners corporation fee properties

• generic townhouses

• low-yield investment stock

• oversupplied new-build areas

• suburbs with weak employment access

• properties relying heavily on tax benefits

• locations where buyers are already at their borrowing limit

These assets may not crash, but they will have less support.

Prices may stay flat in:

• middle-ring suburbs with mixed buyer demand

• average townhouses

• older homes needing expensive renovation

• secondary locations

• properties that are decent but not special

• areas where buyer interest exists but serviceability caps bidding

This is where we may see long periods of sideways movement.

Prices may continue rising in:

• scarce family-home markets

• strong school zones

• land-rich suburbs

• tightly held owner-occupier areas

• affordable areas with strong employment access

• markets with limited listings

• selected new-build markets with genuine demand

• areas where supply is structurally constrained

Good properties will not become cheap just because tax rules changed. With less supply of good properties in the rental market, rent is expected to increase faster.

Melbourne Property Market Outlook 2026 and Beyond

Victoria already has higher investor friction because of land tax and holding costs. Investor sentiment in Victoria has already been weaker than in some other states. Now, when you add:

• negative gearing changes

• CGT changes

• affordability pressure

• tight serviceability

• uneven population flows

• weaker sentiment in some Melbourne segments

The result is going to be a very segmented market.

Melbourne apartments

Most exposed, especially investor-focused apartments with poor owner-occupier appeal. Older apartments in good boutique blocks and strong locations may still perform reasonably, since their holding costs are low. Generic high-density investor stock, is more vulnerable.

Melbourne townhouses

Townhouses in Melbourne is expected to have mixed performance. Good townhouses near transport, schools and lifestyle amenity should hold up. Poorly designed, cramped, dark, high-density townhouses with weak land value may struggle.

Blue-chip family homes

These will be more resilient. These are driven by owner-occupiers, not negative gearing. CGT and negative gearing has never played a role in their ownership decision. Serviceability may cap how high buyers can go, but scarcity will still support good homes. Balwyn buyer may now buy a Glen Waverley mansion, while a Toorak or Hawthorn buyer will now be looking at Kew and Balwyn. There will not be a shortage of buyers.

School-zone homes

Still strong, but not bulletproof. A good school zone will not save a bad floorplan, bad street, easement issue, flood concern, main-road position or badly overcapitalised property.

School-zone buyers may still compete hard, but they will be more selective.

Growth corridors

Some growth corridors may benefit from investor interest in new builds. New investors are now attracted to the possibility of old negative gearing rule. However, depending on your goals, most are not suitable for investors. These areas tends to have lots of supply in the pipeline, and they do not usually attract renters. IE, most of the locations along growth corridors suffer from high vacancy rates, low growth. It is basically in a over supplied market.

But not all are bad. some estates are in demand, even though they may be further from the CBD. If you are investing in these growth corridors, keep a look out for:

• oversupply

• weak scarcity

• infrastructure lag

• small land sizes

• poor transport

• build quality

• future resale depth

A new house-and-land package is not automatically an investment-grade asset.

Sometimes it is just a paddock with depreciation.

What Will Happen to Property Markets Across Australia?

The effect of the negative gearing and CGT changes will not be the same across Australia.

Sydney and Melbourne

More vulnerable to affordability pressure because prices are already high and serviceability is stretched. Cotality has noted Sydney and Melbourne are already in early decline phases, with affordability and rates weighing on demand.

Quality assets should remain resilient, but weaker stock may soften.

Brisbane, Perth and Adelaide

These markets have had stronger recent momentum, supported by affordability advantages, supply shortages and migration trends. Cotality’s 2026 outlook noted that Queensland, Western Australia and South Australia were supported by relatively better affordability, internal migration and housing supply shortfalls.

However, given their recent explosive growth, they are expected to be the worse off, under the new CGT indexation method. Investors are already reassessing the impact as we speak. They may still slow, but the underlying demand picture may remain stronger than Sydney and Melbourne.

Regional markets

Regional Markets are expected to be Mixed as well.

Strong regional centres with jobs, infrastructure, lifestyle appeal and tight supply may hold up. Weak regional markets with thin employment bases and poor rental depth may struggle. Regional property is not one category. Some locations are strong. Most are traps with nice trees.

The Affordability Paradox

The impact of affordability is the part buyers need to understand. The Budget changes may reduce investor competition and slightly reduce price growth in some areas. That will help with affordability. But serviceability ceiling due to higher interest rates and the inability to use property losses to offset personal wage taxes will reduce the purchasing power and may prevent some buyers from purchasing. Heavily leveraged investors will likely be locked out of the property market, until their serviceability improve.

Example:

A property that may have sold for $900,000 now sells for $870,000. That sounds like an improvement.

But if the buyer’s borrowing capacity has fallen from $850,000 to $790,000 because of interest rates, expenses and bank buffers, they are still locked out effectively.

So, while the market can become more affordable, the buyers will still feel they are unaffordable. That is why tax reform alone cannot fix housing affordability. Property prices are determined by demand and supply, and serviceability.

To genuinely improve affordability, Australia needs several things to move together:

• more supply in the right locations

• lower construction red tapes and bottlenecks

• stable or lower interest rates

• wage growth in real terms

• better borrowing capacity

• housing planning reform, not tax reform

• infrastructure delivery

• more rental supply by encouraging private investments

• better-quality housing choices

The Budget changes can help to a certain extent. It is never meant to be the whole machine. I believe the government knows it. And many are already invested in blue-chip locations, which, you know is set to rise further.

What Will Investors Actually Do Next?

Current investors will likely:

• hold grandfathered properties longer

• avoid selling unless the asset is weak

• push rents where the market allows

• refinance or restructure debt

• build larger cash buffers

• review land tax exposure

• sell poor-performing assets selectively

• delay new purchases

• look harder at new builds

• talk to accountants about CGT, trusts and deductibility

• become more focused on yield and cash flow

New investors will likely:

• focus more on cash flow

• demand stronger rental yields

• compare new versus established more carefully

• chase depreciation benefits

• be more cautious with established properties

• look at new builds

• consider alternative investments

• rely more heavily on buyers advocates and property advisers to select the right asset

• still make mistakes if they chase tax benefits instead of fundamentals

Investors will not disappear. But they will adapt. Some will become smarter. Some will become scared. Some will become fresh meat for project marketers.

What Will Property Buyers Do Next?

Owner-occupiers will likely:

• remain active in quality locations

• become more finance-conscious

• demand better value

• walk away from compromised homes

• prioritise long-term lifestyle and security

• focus on school zones, land and scarcity

First-home buyers will likely:

• benefit from reduced investor competition in some established markets

• still struggle with borrowing capacity

• compromise on location or dwelling type

• use government schemes where available

• compete hard in affordable price brackets

• remain vulnerable to overpaying in popular entry-level suburbs

Interstate and overseas buyers will likely:

• become more cautious about established investment properties

• seek stronger local due diligence

• compare Melbourne against other states

• focus on asset quality, rental demand and resale depth

• need better advice to avoid buying tax-driven rubbish

The Property Outlook Over the Next 12 to 24 Months

In our opinion, because the key negative gearing are grandfathered and CGT changes have no impact until investors sell,

1. No broad crash

The Budget changes are significant, but not enough by themselves to crash the national market. In some markets, selling activities will increase, leading to softening of prices. These will likely happen in markets where property prices had outpaced inflation, and where selling under the current CGT is beneficial, eg, Brisbane, Perth, Adelaide. Whereas in markets such as Melbourne, we are not expecting to see such selling, as the price growth had lagged inflation. Selling under the new indexation method may be beneficial.

2. Slower price growth in most areas

CBA’s updated forecast points to slower price growth after the Budget changes. This is true only because weak prices will offset the price boom of quality properties.

3. More segmentation

Quality properties will separate from weak properties.

4. Established investment stock weakens

Especially where the numbers only makes sense when negative gearing is factored in.

5. New builds receive more investor attention

inexperienced investors being attracted by the possibility of offseting property loses against earmed income. But not all new builds deserve it.

6. Existing investors hold longer

Grandfathering creates a lock-in effect, reducing stock of established properties in the market. Reduced supply without reducing demand leads to price rise.

7. Serviceability becomes the ceiling

Even if buyers want to pay more, banks may stop them, as they can no longer offet propert losses against their taxes.

8. First-home buyers get slightly better conditions in lesser locations

Less investor competition helps, but borrowing capacity still limits them.

9. Renters remain under pressure

Rental relief depends on investors buying and putting the properties on the rental market. This is the only way to increase supply, tax changes penalising investors will not help.

10. Good advice becomes more valuable (and expensive)

The gap between good property and bad property will widen.

TL:DR?

Yes, we know, there are a lot to digest and our team has gone through a long thought process to understand the changes, their impact and project what this means to the property market in the coming months.

Table1: Summarises the essence of the article by Property Types:

Table2 Summarises the essence of the article by Buyer Type

Final word

The 2026 Budget changes will not destroy the Australian property market, but they will expose weak properties.

Established investment properties with poor fundamentals will become harder to justify. New builds will attract more attention, but some investors will overpay for tax benefits. First-home buyers may get a better chance in some established markets being abandoned by investors, but serviceability will still limit what they can afford. Renters are unlikely to see major relief unless actual rental supply improves.

The real story is not “property crash” or “property boom”. The real effect is further segmentation.

Good assets will remain desirable and prices will rise faster. Average assets will need to work harder. Poor assets will lose the protection of generous tax settings lazy investor demand, leading to softening of prices.

The Budget changes will not punish every property owner. They will punish lazy buying. And frankly, the market could use a bit of that.