Julia Forrest: What property investors should know about the CGT reset

The Federal Budget’s proposed changes would reduce the after-tax appeal of established residential property, argues Pendal’s JULIA FORREST.

• CGT discount replaced; indexation plus 30 per cent floor
• Negative gearing removed for new existing-home investors
• Find out more about the Pendal Property Securities Fund

THE Federal Budget’s 2026 package targets two of the biggest tax settings underpinning residential property investment – negative gearing and the capital gains tax (CGT) discount – in a bid to shift investor demand away from established dwellings and toward new housing supply.

The measures are proposed to come into effect on 1 July 2027, giving the market a lead time that could influence investor behaviour well before the start date.

What’s changing

Under the proposal, negative gearing concessions would be withdrawn for new investors buying existing residential property from 1 July 2027.

At the same time, the long‑running 50 per cent CGT discount would be replaced with an inflation indexation approach, so tax is levied on real gains, with a minimum 30 per cent tax rate payable.

Existing residential investment is expected to be grandfathered until disposal, limiting immediate disruption for current owners while materially changing the economics for incoming buyers.

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Pendal Property Securities Fund

Julia Forrest, Portfolio Manager

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How it may hit investor returns – and prices

By reducing the after‑tax value of losses and capital gains, the package lowers what an investor will rationally pay for established stock.

“As an incoming purchaser will not benefit from the preferential tax treatment it is possible this will be reflected in a lower price paid,” says Julia Forrest, co-portfolio manager of Pendal Property Securities Fund.

“Treasury estimates house price growth to be 2 per cent lower as a result.”

A likely behavioural response, according to Forrest, is a tilt toward longer holding periods, particularly where investors aim to spread transaction costs and the new CGT settings across a longer timeframe.

Winners and losers: New supply in focus

While the negative gearing changes only apply to residential property and won’t impact other asset classes, the CGT changes apply to all investments.

Forrest says the minimum 30 per cent CGT tax rate may work in favour of dividend stocks over growth stocks.

Meanwhile, the favourable tax treatment benefit for new residential property that genuinely adds to supply should support residential property developers.

“The new rules redirect investor capital away from established property. We note that only 5 per cent of new investor lending finances new builds so this may change the flow of credit,” explains Forrest.

“The changes genuinely seek to increase the supply of housing which ultimately is a positive outcome.

“However, slower house price growth may impact discretionary spending, with the lower wealth effect.”

Forrest says the Pendal Property Security Fund is weighted towards residential developers of affordable dwellings, land lease developers and non-discretionary retail and malls.