Restrictions on negative gearing for established homes, alongside a new capital gains regime for both property and shares, narrow property’s tax advantage for some long-term investors.
Australian home values fell 0.7% in July 2026, the steepest monthly decline since December 2022, with Sydney down 1.4% and Melbourne down 1.2%. The downturn predates the July 2027 start of the government’s tax changes, but it sharpens a long-running question: whether an investment property still offers a better route to long-term wealth than a portfolio of listed shares.
Forecasts have moved with the market. ANZ now expects capital-city prices to fall 4.3% in 2026 and 3.4% in 2027, a 10.6% peak-to-trough decline. The government’s modelling expects the tax reforms alone to leave prices around 2% lower over a couple of years than without the changes. Interest rates and affordability are driving the immediate downturn; tax changes alter the longer-run economics of holding an investment property.
Higher borrowing costs are doing most of the near-term damage. The Reserve Bank raised the cash rate to 4.35% in May and held it there in August. High investor rates make a cash-flow-negative property harder to carry while prices fall. Removing the annual salary offset for losses on newly purchased established homes therefore lands at a particularly awkward point in the cycle.
A new tax system
From 1 July 2027, the 50% capital gains tax discount for individuals, trusts and partnerships gives way to cost-base indexation and a minimum 30% tax on real capital gains. The change applies broadly to CGT assets, including both property and shares, and only to gains accruing after the start date. The 30% floor does not affect taxpayers whose capital gains are already taxed at 30% or more; its main target is the benefit of realising gains in an unusually low-income year.
Indexation is not automatically harsher or softer than the old discount. The outcome depends on inflation, the investment’s return, the holding period and the owner’s marginal rate. In one Treasury example, shares bought for $100 and sold five years later for $125 produce a $12 taxable gain after indexation, slightly below the roughly $13 taxable under the 50% discount. A strongly appreciating asset can face more tax because inflation accounts for less of its nominal gain.
Negative gearing creates the clearer divide. From 1 July 2027, losses on an established residential property bought after 7:30pm AEST on 12 May 2026 can offset only residential-property income, including capital gains, rather than salary or wages. Excess losses carry forward. Properties already held at the announcement remain grandfathered, while qualifying new builds retain negative gearing and can choose the existing 50% CGT discount. Affordable housing keeps its 60% discount, and the principal residence remains exempt.
Where shares can pull ahead
Shares retain a tax treatment that established residential property is losing. An investor who borrows to buy shares can generally deduct interest where dividend or other assessable investment income is expected. Franking credits can also reduce the investor’s personal tax bill by recognising company tax already paid on a dividend, subject to the usual eligibility rules. Together, those features tilt the after-tax comparison toward shares, especially as property loses deductions it once enjoyed.
Australian shares have also delivered income without requiring an investor to concentrate in one property. At 31 July 2026, the Vanguard Australian Shares Index ETF reported a 5.86% gross return over one year and 7.86% a year over five years, with an equity yield of 3.1%. Those figures are a dated snapshot rather than a forecast, but they illustrate the combination of income, liquidity and diversification available through a broad listed portfolio.
Property carries far higher entry and exit costs. Agent commission, marketing and conveyancing absorb part of a sale, while stamp duty can add several percentage points when an investor buys. The precise total varies by state, property value and agent, so a single national round-trip figure is misleading. Maintenance, insurance and management costs also persist. Under the new rules those costs are not simply lost: when they contribute to an excess residential-property loss, the deduction can be carried forward for use against later property income or a property capital gain. Shares, by contrast, can be bought or sold in pieces, settle quickly and spread risk across sectors and countries.
Raising cash without selling
The reform sharpens a familiar liquidity question: how to draw cash from an appreciated asset without immediately realising a taxable gain. Property owners have long borrowed against home equity.
Holders of eligible listed securities have a parallel route through equities-based financing backed by an existing portfolio. The cash can meet another need without requiring the investor to sell down, although the amount available, collateral terms and consequences of a market decline depend on the facility.
The market is well established in the United States. A Federal Reserve estimate put securities-based loans outstanding at about $138 billion in the first quarter of 2024, roughly 20% below their 2022 peak of $174.7 billion.
None of this makes shares the automatic winner. Property still permits substantial leverage against a modest deposit, is less visibly volatile than the stock market and benefits from a housing shortage supported by population growth. Australia’s net overseas migration was 301,000 in the year to December 2025. Yet the starting point has changed. For investors who treated an established rental apartment as the default, the after-tax case for listed shares now looks at least even, and on several measures ahead, once liquidity, diversification and retained borrowing deductions are counted.
