Apartment Investors Face a New Era After Negative Gearing and CGT Reforms

Australia’s apartment market is entering a new chapter after the Federal Government confirmed major changes to negative gearing and capital gains tax (CGT) concessions aimed at reshaping investor behaviour and improving housing affordability.

The reforms, which will largely apply from 1 July 2027, are some of the most significant property tax changes in decades. Rather than removing investor incentives entirely, the Government is attempting to redirect investment away from existing properties and toward the construction of new housing supply.

For apartment investors, the changes could influence everything from buying decisions and property values to building quality and long-term investment strategy.

What Actually Changed?

Under the new rules announced in the 2026 Federal Budget:

• Existing investment properties purchased before budget night are “grandfathered”, meaning current owners largely keep their existing tax treatment.

• From July 2027, negative gearing will generally only apply to new-build residential properties.

• The 50 per cent CGT discount will be replaced with an indexed system for future purchases of established investment properties.

• New housing developments retain incentives, including continued negative gearing access and more favourable CGT treatment in some circumstances.

Understanding Negative Gearing

Negative gearing has long been one of the most debated aspects of Australia’s property market. In simple terms, negative gearing allows property investors to deduct losses from their taxable income when the costs of owning a property exceed the rental income it generates. This can include interest repayments, maintenance costs and other expenses associated with holding an investment property.

Supporters argue the system encourages investment in housing and increases rental supply. Critics, however, say it contributes to rising property prices and disproportionately benefits wealthier Australians who can afford to absorb short-term losses in exchange for long-term capital growth.

Under the Government’s proposed reforms, negative gearing will generally be limited to newly built residential properties from July 2027 onwards. Existing investment properties purchased before the changes will largely retain their current tax treatment through grandfathering provisions (pre 12 May 2026).

What Is Changing With Capital Gains Tax?

The reforms also target capital gains tax concessions for property investors. Currently, investors who hold an asset for more than 12 months receive a 50 per cent discount on capital gains tax when they sell that asset for a profit. This concession has been a major driver of long-term property investment strategies for decades.

The Government will now replace the 50 per cent discount with a system linked to inflation and introduce a minimum 30 per cent tax on gains from 1 July 2027. According to the Government, the change is designed to ensure investors only pay tax on their “real” capital gain after inflation, restoring what it describes as the original intent of the CGT system.

Existing Apartment Investors Largely Protected

For current apartment investors, the immediate impact may be less dramatic than many initially feared. Because the reforms are heavily grandfathered, owners who already hold established investment apartments are expected to retain access to their existing negative gearing and CGT arrangements. This provides a level of certainty for long-term investors and reduces the likelihood of a sudden sell-off across the apartment market.

However, the changes may still reshape investor behaviour over time. Many existing investors could become more reluctant to sell properties that retain favourable tax treatment, particularly if replacing them with another established apartment would no longer provide the same advantages. This could tighten the supply of quality investment-grade apartments in highly sought-after suburbs.

In Sydney, where well-located apartments in professionally managed strata schemes are already tightly held, the reforms could increase competition for established properties with strong long-term fundamentals.

New Apartment Developments Expected to Benefit

The clearest winners from the reforms may ultimately be new apartment developments.

Because negative gearing concessions will continue to apply to newly built housing, investors are expected to shift more attention toward off-the-plan apartments, recently completed developments and large-scale urban renewal projects.

The Government’s intention is clear: encourage investor money to help create additional housing supply rather than competing for existing homes.

For developers, this could increase pressure to deliver higher-quality apartment product that appeals to both investors and owner-occupiers. Apartment design, sustainability features, amenities and long-term liveability may all become more important competitive advantages as investors become increasingly selective.

Will the Reforms Improve Housing Affordability?

Whether the changes will materially improve housing affordability remains a subject of intense debate. Supporters believe reducing tax incentives for established properties may ease investor competition and improve access for first-home buyers. Critics argue the reforms alone are unlikely to significantly lower prices without a substantial increase in overall housing supply.

Most economists agree the effects are likely to be gradual rather than immediate, particularly in major cities like Sydney where housing demand continues to outpace supply.

What It Means for the Future of Apartment Investing

What is becoming increasingly clear is that Australia’s apartment investment market is shifting away from a model driven primarily by tax advantages. Future investors are likely to focus far more heavily on rental performance, asset quality, operational efficiency and long-term sustainability.

For the strata sector, that could ultimately be a positive outcome. Well-managed apartment buildings with proactive maintenance, sound financial planning and strong governance may become increasingly valuable in a more disciplined investment environment.

While tax incentives continue to evolve, the fundamentals of successful apartment investment remain unchanged - quality buildings, strong locations and well-managed strata schemes are what ultimately protect long-term value. As the property landscape becomes more complex, Compass Strata works alongside owners corporations to help them stay ahead of change, strengthen building performance and plan with confidence for the future. If you would like to see how we can support your scheme, get in touch with Compass Strata today.