The 2026 Federal Budget: What Does It Mean for Real Estate?

 

The 2026 Federal Budget has put housing, property investment and tax reform firmly in the spotlight.

For buyers, investors, landlords and real estate professionals, the key message is clear: the Government wants to make it easier for first home buyers to enter the market, while reducing some of the tax advantages traditionally available to property investors.

The biggest changes relate to negative gearing, capital gains tax, first home buyer support, and small business tax measures.

 

 

Negative gearing is changing.

Negative gearing has long allowed investors to offset rental property losses against their personal income.

In simple terms, if an investor received $30,000 in rent but spent $40,000 on loan interest, rates, repairs, insurance and other costs, they had a $10,000 loss. Under the current rules, that loss could generally reduce their taxable wage income.

The Budget changes this for many future investors.

From 1 July 2027, losses from established residential investment properties acquired after Budget night will generally no longer be able to reduce salary and wage income. Instead, those losses will be carried forward and used against future rental income or residential property capital gains. Negative gearing benefits will remain available for new residential properties, supporting the Government’s aim of encouraging more housing supply.

 

What this means for investors

The benefit does not necessarily disappear, but it may be delayed.

Rather than receiving a tax benefit each year against wages, affected investors may need to hold those losses and use them later against future property income or when they sell.

For some investors, this could reduce short term cash flow. For others, especially those investing in new builds, the impact may be less significant.

 

 

Capital gains tax is also changing
The Budget also changes how capital gains tax, CGT, will work.

Currently, many investors who hold an asset for more than 12 months can access a 50% CGT discount.
This means only half of the capital gain is taxed.

From 1 July 2027, the Government will replace the 50% CGT discount with an inflation based method. Instead of simply cutting the gain in half, the original purchase price will be adjusted for inflation, and tax will apply to the real gain. A minimum 30% tax on gains will also apply. These reforms will only apply to gains arising after 1 July 2027

 

 

First home buyers are a major focus

The Government says the negative gearing and CGT reforms are designed to improve housing affordability and support more Australians into home ownership.

The Budget states these tax changes are expected to support an additional 75,000 homeowners over the decade.

For first home buyers, the intention is to reduce competition from investors for established homes. If fewer investors are buying existing stock for tax reasons, the Government expects more properties to be available to owner occupiers.

Whether this meaningfully improves affordability will depend on market conditions, interest rates, supply levels and buyer demand.

 

New housing supply gets preferential treatment

A clear theme in the Budget is that the Government wants investment money directed towards new housing, not just existing homes.

That is why negative gearing benefits remain available for new residential properties, and why investors in new builds will have more favourable treatment under the CGT reforms.

For developers, builders and project marketers, this may create stronger interest in new stock from investors who still want tax efficiency.

For established property investors, the rules may make the numbers harder to justify unless the property has strong rental income, strong long term growth prospects, or both.

 

 

What does this mean for landlords?

For existing landlords, the key question is whether their current property is protected under transitional arrangements.

Many existing arrangements are expected to be grandfathered, meaning current owners may not be immediately affected in the same way as future buyers of established investment properties.

However, landlords considering their next purchase should review the numbers carefully. A property that once made sense because of yearly tax relief may look different if losses can no longer be offset against wage income.

 

Have we seen this before?
Australia has been here before.

In 1985, under the Hawke Government, with Paul Keating as Treasurer, negative gearing rules were changed so that rental property losses were “quarantined”. That meant investors could no longer use rental losses to reduce tax on wages or other income. Losses could only be used against rental income, future rental profits, or capital gains from investment properties.

That is very similar in principle to what is being proposed now.

The policy was later reversed in 1987, and negative gearing was restored. One of the arguments at the time was that investors were leaving the rental market and that rents were rising. Paul Keating himself suggested in a 1987 Cabinet submission that the changes had caused investors to leave the rental market, putting upward pressure on rents.

 

Why this matters today
The lesson for today’s market is simple.

Changing negative gearing may help reduce investor competition for established homes, which could assist some first home buyers. But if fewer investors buy rental properties, especially when vacancy rates are already low, there is a risk of extra pressure on rents.

That is why the Government is trying to direct investor money towards new housing, not just existing homes. The aim is to reduce competition for established properties while still encouraging more rental supply.

 

What does this all mean
For buyers, landlords and investors, the 2026 Federal Budget is a reminder that property decisions should not be made on tax benefits alone.

The rules are changing, but the fundamentals remain the same.

- A strong location matters.

- Rental demand matters.

- Cash flow matters.

- Long-term growth matters.

- The right advice matters.

For investors, now is the time to review your numbers before buying, selling or holding. For landlords, it is a timely reminder to understand how these changes may affect future cash flow and tax planning.

The property market is changing, but good decisions still start with good advice.
Speak with the Aurora team today and get ahead of the changes.