Negative Gearing Reforms Set to Drive Investors Out, Survey Finds

Three in four property professionals expect investor activity to contract under the government's new CGT and negative gearing rules.

Australia's property investors are staring down the most significant shift in residential property taxation in decades. The federal government's recently legislated changes to negative gearing and capital gains tax (CGT) are now law — and the industry's verdict on their likely impact is stark. New research from national valuation firm Herron Todd White, canvassing property professionals who advise, finance, value, and regulate property transactions every day, paints a picture of widespread concern.

Three in four respondents — 75% — said they expected a significant number of residential investors to sell or cease investing as a direct result of the new tax rules.

What the Reforms Mean for Investors

The centrepiece of the changes is the removal of negative gearing concessions on established residential properties. Under the previous rules, investors could offset losses from an investment property against other income, reducing their taxable income. That concession has now been restricted to new dwellings only.

As MPA Australia reports, Peter Maloney, chief executive of Herron Todd White, flagged the downstream effects as potentially far-reaching.

"When investors are prevented from purchasing established properties with the benefit of negative gearing, there is genuine concern the impacts could extend to downstream rental supply, housing confidence and broader market activity," Maloney said.

The government's intention is to redirect investor activity toward new builds, where negative gearing is retained. But Maloney is sceptical that this will translate into a clean shift. "There is nothing to suggest that investors will suddenly pile in and take advantage of negatively gearing new dwellings to help fuel supply," he said. "And if they did, we now have the perverse equation of first-home buyers having to directly compete with investors for new dwellings — the category in which first-home buyers are more likely to start their home ownership journey."

"Reduced investment activity also has the potential to flow through to rental supply, housing confidence and broader market stability," Maloney added.

What Property Professionals Expect to Happen to Values

The survey findings on property values are sobering for anyone with a stake in the residential market — whether as an investor, an owner-occupier, or someone saving for their first home.

Nearly 78% of respondents anticipated a decline in residential property values over the following two years. When asked to estimate the size of any fall:

- 37.7% forecast a price decline of between 5% and 10% - 28.4% anticipated a fall of up to 5% - 11.8% expected values to drop by more than 10% - 14.7% foresaw no material change - 7.4% expected values to rise

"While the extent of any market adjustment remains uncertain, there is a clear expectation among industry participants that the proposed reforms would place downward pressure on residential property values," Maloney said.

For existing homeowners who rely on property equity for refinancing, renovation lending, or access to better rates, a sustained softening in values could affect those options materially.

Supply Concerns Dominate Industry Thinking

One of the stated objectives of the CGT and negative gearing reforms is to improve housing affordability by easing supply constraints — the theory being that investor demand for established properties crowds out owner-occupiers and inflates prices. But the property professionals surveyed are largely unconvinced the changes will achieve that goal.

Nearly 74.55% of respondents said the changes would either worsen housing supply or produce no material benefit. Breaking that down:

- 43.5% said the reforms would worsen housing supply shortages - 31% expected no material impact on supply - 16% were unsure - Only 9.4% believed supply would actually improve

"Less than one in 10 professionals surveyed believe these reforms will improve housing supply outcomes," Maloney said. "That is a significant finding given housing supply and affordability remain central to Australia's economic and social policy agenda."

The concern, as articulated by multiple respondents, is that removing the incentive to buy established properties does not automatically create more new builds. Construction timelines, costs, and approvals remain unchanged by the tax reforms — and history suggests investor appetite for off-the-plan and new builds is far more sensitive to market conditions than to tax settings alone.

What Property Investors Should Do Now

If you currently hold an investment property, or are actively planning to add one to your portfolio, the economics have shifted and the numbers need to be reworked. Properties that previously made sense on a negative gearing basis — particularly established dwellings — need to be reassessed against the new rules.

For investors who want to retain access to negative gearing, new builds are now the relevant category. But that brings its own considerations: construction risk, longer settlement timelines, and the competition with first-home buyers in the new dwelling space that Maloney highlights.

For those already invested and reviewing their portfolio structure or debt strategy, comparing available investor home loan options across lenders is a sensible first step. Our borrowing power calculator can also help you model how a shift in property values affects what you can access.

And if you are weighing whether to hold, sell, or restructure ahead of the reforms taking full effect, speaking to a broker who understands how tax changes interact with lending structures can save you from making decisions based on incomplete information.