Perth property experts are raising alarms that the number of rental properties near the city center could shrink and rents could spiral upward following new tax rules in the federal budget that eliminate negative gearing tax breaks on established properties.
Budget Changes Explained
Treasurer Jim Chalmers' Federal Budget for 2026 abolishes negative gearing on established properties, allowing it only for new home builds starting July 1 next year. However, negative gearing will still apply to investment properties purchased before 7:30 PM on budget night, May 12.
The government will also replace the 50 percent capital gains tax (CGT) discount with a discount based on inflation-adjusted indexation. These CGT reforms will apply only to gains arising after July 1, 2027. Investors in new builds can choose between the 50 percent CGT discount or the new arrangements.
Investors who purchase an investment property after budget night will be subject to the new rules. According to budget papers, "Investors who buy established housing after budget night will still be able to deduct losses against residential property income. They will be able to carry forward unused losses to future years but won't be able to deduct them against other income like wages."
Impact on Rental Market
The government believes these tax changes will help approximately 75,000 homeowners enter the market over the next decade. However, Perth property analyst Gavin Hegney warns that investors will leave the rental market if they cannot claim negative gearing tax breaks. He predicts rents will rise for the dwindling stock, particularly for houses close to the city.
Mr. Hegney noted that new builds are traditionally located in subdivisions in outer suburbs, which are less attractive to investors due to slower capital gains. "For investors to buy established properties with no negative gearing ability will require them to be compensated with having higher rents, effectively increasing the yield that they get from the investment," he said. "Therefore this policy change will result in higher rents for established properties relative to their values before investors are enticed to step back in and commence buying."
Currently, there are only 2,246 dwellings advertised for rent in Greater Perth, with the median dwelling rate at the end of April reaching $720 per week.
Investor Reactions
REIWA boss Suzanne Brown said investors, wary of negative gearing and capital gains tax changes, had already sought to sell up in recent weeks. "Our members have seen an increase in the number of sales by investors, and appraisals for investors, in the lead up to the budget," Ms. Brown said.
Government Measures
The federal government believes the new property tax rules give young people a better shot at getting into their first home, with a heavy focus on helping create new builds traditionally in outer suburbs. It has provided $2 billion to councils for infrastructure costs to unlock undeveloped land. An additional $1 billion has been allocated in a joint State/Commonwealth program to build 34,000 homes in Western Australia over eight years, including 11,000 for first home buyers.
