Almost $250,000 in additional tax over a 10-year holding period will be the cost difference facing an average Australian wage earner who chooses to buy an established investment property rather than a new build from July next year, under sweeping federal budget changes that are expected to fundamentally reshape the property investment market.
For higher-income earners on the top marginal tax rate of 45 per cent, that disincentive rises further, with analysis indicating the gap could reach nearly $280,000 once changes to negative gearing, capital gains tax treatment, depreciation rules and stamp duty settings are fully reflected in long-term investment outcomes.
The figures, drawn from a new analysis of current and proposed tax settings by The Australian, suggest a structural shift in the relative attractiveness of established versus newly built housing, with industry experts warning the policy changes are likely to redirect investor demand into new housing stock at scale and potentially away from the established market that first-home buyers typically rely on.
Cate Bakos, Chair of the Property Investment Professionals of Australia (PIPA), said the consequences of the changes extend far beyond individual investment decisions, warning the policy shift could reshape credit conditions, asset values and rental markets in ways that may not yet be fully appreciated.
“That’s a bad case scenario, but that has far reaching consequences beyond just the consumer,” she said.
“I think our banking system will feel it if we have asset values across the board diminish,” she said, adding that in her view the more likely outcome may not be falling prices but rather a sharp escalation in rents.
“The other one, which I think is more likely than asset values dropping, is rents going through the roof. I think we’re going to hurt our rental contingent beyond imagination.”
Ms Bakos said she expected only a “tiny few” investors would continue to buy established rental properties once the changes take effect, arguing that the economics would no longer support broad-based participation in that segment of the market.
“The cash flow scenario is just too tough and too restrictive for investors to go into established now,” she said.
She said lenders were already adjusting their models in response to the policy shift, with banks previously factoring negative gearing benefits into borrowing assessments now reassessing those assumptions.
“We’ve already had one bank update their calculators,” she said, noting that the divergence in borrowing capacity between new and established property was already material.
“One example I had was $800,000 as the borrowing capacity for new and $500,000 for established, so that already cuts out a lot of options in the established market anyway.”
According to the analysis, an average Australian earning around $100,000 who purchases a median-priced $1 million rental property next year and holds it for a decade before selling in 2037 could face a $248,000 higher tax burden if they buy established rather than newly built housing, with the difference largely driven by the loss of depreciation benefits and reduced effectiveness of negative gearing under the revised settings.
For higher-income earners on around $220,000, that gap increases to approximately $279,250, reflecting the way higher marginal tax rates amplify both deductions and the impact of their removal over time.
Ms Bakos said the behavioural impact of the changes was already becoming apparent among investors, with many reconsidering whether they should remain in the market at all or pivot toward alternative strategies.
“We’re seeing investors pivot … a lot of them have lost confidence, they’re very nervous about the impact of all of this on the property market and their asset values.”
She said those still active in the market were increasingly concentrated at the higher end of income and wealth, where borrowing capacity and cash flow allowed continued participation, particularly in established properties located in strong-performing areas.
“I am talking to investors who can still buy established in quality areas and get a good asset,” she said, noting that this group was becoming more selective and more constrained.
At the same time, she warned that shifting investor demand toward new housing could create its own distortions, including the risk of overpricing in the new-build segment as capital concentrates into a narrower part of the market.
“I’m concerned that we’ll see a bubble impact in those markets,” she said.
“The intrinsic value of a new property for an investor right now lies in its tax deductibility, and that’s only a one-hit wonder. Once you’ve bought it, if you have any reason to sell, you might be dealing with something that’s hard to offload for the same price you paid for it.”
Ms Bakos also cautioned against what she described as growing misinformation among retail investors, particularly on social media, where she said inexperienced commentators were encouraging buyers toward commercial property or speculative strategies without sufficient understanding of risk.
“There are a lot of so-called finfluencers who are essentially running a business and giving advice they’re not qualified to give,” she said. “I think that’s frightening. People are blindly following advice, and they may not like what happens to the markets they’ve been buying into.”
Looking ahead, she said the worst-case scenario for the established housing market would be either a broad decline in dwelling values or a significant escalation in rents driven by reduced investor participation and tightening supply conditions, both of which would carry broader systemic consequences.
“No Australian who owns a home wants to see their values drop,” she said, “but that would have far-reaching consequences beyond just the consumer. The banking system would feel it if asset values across the board diminish. And the other scenario, which I think is more likely, is rents going through the roof. We’re going to hurt our rental contingent beyond imagination.”