From investors to first-home buyers, here’s what to watch for in the next year. Photo: John Mooney Real Estate.
The Riverina property market is bracing for a potential wave of investor sell-offs, following controversial budget changes to capital gains tax (CGT) and negative gearing.
Local landlords have a 12-month window to reconsider their portfolios before the standard 50 per cent CGT discount is axed on 1 July 2027.
While the overhaul aims to level the playing field for first-home buyers, Jacinta Kelly, Licensee in Charge at John Mooney Real Estate, says the effects were immediate among local investors.
“We did see some investors get cold feet on budget night,” she says.
Following the announcement, the main residence exemption remains untouched, but from 1 July 2027, Australia will swap the flat 50 per cent CGT discount for an old-school inflation system for investment properties.
If you sell an asset such as an investment property held for over a year, you’ll no longer get to cut your taxable profit in half. Instead, your purchase price will be adjusted for inflation, and you’ll face a minimum tax rate of 30 per cent on the remaining profit.
The upshot? The family home is exempt, but everyday investors may need to rethink their tax strategies.
“To put it in normal terms, before these changes, if you made a $100,000 profit off an investment property, you were only taxed on half of that profit at your normal personal income tax rate, meaning a high-income earner would pay more, while someone in a lower bracket paid much less,” Jacinta explains.
“Under the new rules, everyone faces a mandatory minimum 30 per cent tax on the profit left after inflation. So if your capital gains were that $100,000, you could easily end up paying tax of $30,000 on your gain instead of maybe $17,000, depending on your tax bracket.”
Capital gains were not the only target.
For decades, the relationship between property and your salary worked both ways: if your rental property made a loss, you could use negative gearing to reduce your personal income tax bill.
Not anymore. A decoupling of property losses from income was announced side-by-side with the changes to CGT.
“I think a lot of investors saw it as a double-whammy,” Jacinta says.
There are, however, two caveats.
If an investor buys an eligible new build, the tax rules do not change. Both the old CGT and negative gearing tax structures remain intact for these properties to stimulate construction.
The timing to scrap negative gearing will also be rolled out using a two-tier system based on when you bought the property.
If you already owned an investment property, or signed a contract to buy one, before the budget announcement (7:30 pm on 12 May), you can continue to negatively gear that property against your income for as long as you own it. If you purchase an established property as an investment, you can negatively gear it for a grace period that ends after 30 June 2027.
“So, if you already owned a property before the budget announcement, nothing changes. You can still negatively gear that property. But established properties acquired after the announcement will have restricted deductions from the 1st of July 2027,” Jacinta says.
“It’s quite complex, and I think having that 12 months up people’s sleeves will allow them to get their heads around it.”
Jacinta says the market is likely to experience a “knee-jerk reaction” in the short term.
“I daresay investor activity will slow for the next couple of months. We may also see an injection of stock into the market as people look to sell while they can still optimise their capital gains tax discount,” she says.
“After that, it remains to be seen, but I do believe it will bounce back. And on a positive note, if there’s less competition from investors, and more stock available, the government may indeed achieve what they set out for — giving first-home buyers a look in.”
Overall, Jacinta’s advice for Riverina property owners remains the same as it has always been.
“For investors, check your specific circumstances with your financial advisers before you make a rush decision,” she says. “For first-home buyers, it may be more important than ever to have your pre-approval for finance ready.”
For more information, contact John Mooney Real Estate.
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