Tax Reform Jitters: Planned CGT and Negative Gearing Changes Spook Property Investors

Australia's property investors are bracing for significant changes after the federal government signalled plans to reform capital gains tax (CGT) concessions and negative gearing rules — moves that industry groups warn could reshape investor lending demand and reshape the rental market.

What the Proposed Reforms Involve

Reports from Australian Broker and property industry sources indicate that planned policy changes could include:

• Reducing CGT discounts for investment properties held over 12 months (currently 50% for individuals)
• Restricting negative gearing to new properties only, ending the ability to offset losses on existing residential investment properties against other income

These proposals have generated significant concern among property investors and finance brokers, particularly given the current environment of elevated interest rates and compressed rental yields.

Why Investors Are Nervous

The timing matters. After two years of rate hikes, many property investors are already operating on thin margins. A reduction in CGT discounts or negative gearing would:

• Reduce after-tax returns, making property investment comparatively less attractive
• Accelerate sell-offs from investors who can no longer sustain negative cash flow under the new rules
• Dampen new investor activity, reducing competition for investment-grade properties

For mortgage brokers and lenders, the concern is a potential pullback in investment lending volumes — a market segment that has been recovering strongly through 2025 and early 2026.

The Commercial Property Angle

For borrowers focused on commercial property rather than residential investment, these reforms may have indirect benefits. If residential investors exit the market, demand and capital may shift toward commercial assets — retail, industrial, office — where different tax rules apply.

MPFG Capital's commercial lending solutions cover retail shops, warehouses, and commercial office spaces, typically up to 75% LVR for owner-occupied commercial property and 65–70% for investment commercial assets.

Non-Bank Lenders and Investor Lending

The non-bank sector has been a significant source of investor financing, particularly for:

• Alt Doc investors — self-employed individuals who own investment properties
• Commercial property investors seeking higher LVR or flexible income verification
• Portfolio investors whose overall borrowing levels make major banks reluctant to lend

If tax changes reduce investor demand in the residential space, non-bank lenders may increasingly pivot toward commercial, development finance, and bridging products.

What Investors Should Do Now

1. Model the scenarios. Work with a tax adviser to understand your position under different CGT and negative gearing outcomes.
2. Review your portfolio financing. Understand which properties are cash flow positive and which rely on tax offsets to remain viable.
3. Explore commercial options. Commercial property lending at MPFG Capital may suit investors seeking different asset classes.
4. Do not make reactive decisions. These reforms have not yet been legislated. Wait for confirmed policy before restructuring.

This article is for general informational purposes only and does not constitute financial or tax advice. Consult a qualified accountant and financial adviser before making any investment decisions.