If you’ve been following the news over the past few weeks, you’ve probably heard plenty of noise around negative gearing and capital gains tax.
The Federal Government’s latest Budget has delivered some of the biggest proposed property investment tax reforms in decades, and while the headlines have focused on housing affordability and first-home buyers, the reality is that these changes could have a significant impact on property investors, borrowing capacity, and lending strategies over the coming years.
For investors across the South West, it’s worth understanding what these changes mean and how lenders are already starting to react.
What’s Actually Changing?
Under the proposed reforms, investors purchasing established residential properties after Budget night (12 May 2026) will eventually lose access to traditional negative gearing benefits from 1 July 2027. Existing property owners are expected to be protected under grandfathering provisions, meaning current arrangements would remain in place for properties already owned before the announcement.
The Government has also proposed replacing the current 50% Capital Gains Tax (CGT) discount with a new indexation-based system. The objective is to reduce speculative investment and redirect investment activity towards creating new housing supply.
For investors buying established properties in the future, rental losses will no longer be able to offset salary or business income. Instead, those losses will generally be quarantined and carried forward to offset future rental profits or capital gains.
While the legislation still needs to pass through Parliament, lenders are already preparing for a different investment landscape.
Why Borrowing Capacity Could Become the Bigger Story
Most investors immediately focus on the tax implications.
But from a lending perspective, borrowing capacity may end up being the bigger issue.
Historically, many lenders have allowed negative gearing benefits to be included in servicing calculations. In simple terms, the expected tax savings from an investment property helped improve an applicant’s borrowing power.
As lenders begin adjusting to the proposed reforms, some have already started reviewing how they assess investment loans. Industry reports indicate that certain lenders have reduced or removed negative gearing add-backs when assessing some investment applications. As a result, investor borrowing capacity could fall by around 10% to 20% depending on individual circumstances.
For investors who are already stretching to purchase their next property, that reduction can make a significant difference.
The days of simply relying on future tax benefits to support a lending application may be coming to an end.
Why New Builds Are Suddenly Back in the Spotlight
One clear message emerging from the reforms is that the Government wants investor money flowing into new housing.
Under the proposed rules, newly built properties would continue to retain access to negative gearing benefits, making them considerably more attractive than established homes from a taxation perspective.
That’s why we’re already seeing increased discussion around:
- New construction projects
- House-and-land packages
- Build-to-rent developments
- Regional growth areas with strong rental demand
For many South West investors, this shift could create opportunities closer to home.
Areas experiencing population growth, infrastructure investment and housing shortages may become increasingly attractive as investors look for stronger rental yields and properties that align with the new policy settings.
What This Means for South West Investors
The key takeaway is that property investing is unlikely to disappear.
But the numbers behind investment decisions are changing.
For years, many investors focused heavily on capital growth and tax advantages. Going forward, cash flow, rental yield and loan structure may become far more important considerations.
We’re already having more conversations with clients about:
- Structuring investment lending correctly from the start
- Understanding borrowing capacity before making offers
- Comparing new builds versus established properties
- Managing cash flow under higher interest rate environments
- Planning for future lending opportunities rather than simply the next purchase
The investors who adapt early will likely be in the strongest position.
Could First Home Buyers Benefit?
One of the Government’s stated goals is to reduce investor competition in the established housing market and improve affordability for owner-occupiers. Treasury modelling suggests the changes could help more first-home buyers enter the market over time.
Recent market commentary has already linked the reforms to softer auction activity and reduced investor demand in some capital city markets. While opinions differ on how significant the impact will be, there is growing consensus that investor behaviour is likely to shift as the reforms progress.
For regional areas like the South West, the impact may be more nuanced. Strong local employment, lifestyle migration and housing shortages continue to support demand in many communities.
That’s why local advice remains important.
National headlines rarely tell the full story of what’s happening on the ground in regional Western Australia.
The Bottom Line
Whether you agree with the reforms or not, one thing is clear: the property investment landscape is changing.
The combination of proposed negative gearing reforms, CGT changes and evolving lender policies means investors will need to be more strategic than ever.
For some, that may mean accelerating plans already in motion.
For others, it may mean reassessing borrowing capacity, reviewing loan structures or considering opportunities in new-build projects that better align with the future rules.
The biggest mistake investors can make right now is assuming nothing will change.
Over the next 12 to 24 months, we expect lenders to continue adjusting servicing models, credit policies and investor lending strategies as the legislation develops and market conditions evolve.
If you’re considering your next investment purchase, refinancing an existing portfolio, or simply want to understand how these changes could affect your borrowing power, now is a good time to have that conversation.
Because in lending, being prepared almost always beats being surprised.
Will existing investment properties lose negative gearing benefits?
No. Under the Federal Government’s proposal, investment properties owned before Budget night on 12 May 2026 are expected to be grandfathered. This means existing investors should retain access to current negative gearing arrangements, while the changes would apply to future purchases of established residential properties.
How could these reforms affect my borrowing capacity?
Many lenders currently factor negative gearing tax benefits into their servicing calculations. As lenders adjust to the proposed reforms, some are already reviewing how they assess investor applications. Depending on your circumstances, borrowing capacity could reduce by around 10–20%, making loan structure and lender selection more important than ever.
Why are new build properties becoming more attractive to investors?
The proposed reforms are designed to encourage investment in new housing supply. New build properties are expected to retain access to negative gearing benefits, making them more attractive than established homes from both a tax and lending perspective. This could lead to increased demand for house-and-land packages and construction projects across regional areas.
Should I buy an investment property before the changes take affect?
Every investor’s situation is different. While some buyers may choose to bring forward their investment plans, the right decision depends on your borrowing capacity, cash flow, long-term goals and the type of property you’re considering. Seeking finance and tax advice before making any decisions is essential, particularly while legislation and lender policies continue to evolve.
