Negative Gearing Is Going: Who Wins And Who Gets Hurt?

The budget laddered last week and already the industry is doing what it always does, reacting to the tax change and missing the structural one. And some opportunists are out there trying to pitch new business ideas already. Yes, negative gearing on established property is done and dusted.

And yes, the capital gains tax discount is being replaced. But the more interesting question isn't what's changing for existing investors or new investors even, but what gets built on the other side of this and who gets hurt by it.

The government's logic is tidy on paper, offer negative gearing and maximum capital gains tax discounts only for new builds, encouraging developers to proceed and investors to fund them and supposedly help first home buyers in the process.

But the secondary market problem that creates, who buys the resale of a new apartment or house when the tax incentive doesn't transfer to the second owner? It's the kind of unintended consequence that tends to be invisible until it isn't.

Today, we're going to work through the full picture in this episode, what the grandfathering actually means for investors who already hold property while the new build carve out is a trap dressed as an opportunity and what the trust changes do to strategies many sophisticated investors have spent decades building and just watch this space in terms of self-managed super fund lending.

Welcome to the elephant in the room. This is the podcast where we love to talk about the big things in property that never usually get talked about.

I'm Veronica Morgan, real estate agent, buyer's agent and buyer's agent mentor, co-host of Foxtel's Location, Location, Location Australia, author of Auction Ready and co-host of Your First Home Buyer Guide.

Hi, I'm Chris Bates, ex-financial planner and mortgage broker, currently ranked number three in the annual MPA Top 100 Mortgage Broker Awards. Before we get started, everything we talk about today is not personal advice, and we recommend you engage the services of a licensed and experienced professional.

We've been talking about this for weeks. We've been speculating. Everyone's been speculating. We always say we don't really know what's going to happen. Then, of course, the bombshell lands. From the 1st of July, 2027, losses from established residential properties will only be deducted against rental income or capital gains from residential properties.

And what that means is excess losses will carry forward. People will not be able to claim tax deductions for the losses held, particularly in the early years of holding an investment property. This is going to change. to establish properties only.

And those are acquired from 7.30pm, that's Sydney time or Canberra time on the 12th of May, 2026, but it won't actually come into effect until the 1st of July, 2027, in which time you can buy a property, you can claim negative gearing, but then you lose it on the 1st of July, 2027.

And the capital gains tax also changes on from a discount of 50% and it's going to revert to what it was before 1999, where there's going to be an annual calculation based on actual inflation and capped to make sure that you have to pay a minimum 30% tax.

on the gains. Now that's a sort of quick and simple overview for properties. There's some stuff in there about trusts and that trusts, the distributions from trusts, family trusts are going to be taxed at that minimum 30% rate as well. They're trying to even things out, but self-managed super funds are exempt.

So we want to delve into a lot of this because there's going to be a knock-on effect. There's a lot up in the air at the minute. We know it's got to get through legislation.

But I guess what we're alarmed at already, and Chris has been all over social media today checking this out, the property spruikers are out there in fine form, pivoting and changing already and coming up with new ways to fleece unsuspecting investors who now will all be flocking towards new properties.

So tell us about what you've been seeing today, Chris.

We were actually chatting during an episode when I sort of highlighted, you know, this is what they're thinking about. And we were both here in shock. And I was in shock when I first heard that they were going to remove negative gearing for all existing established property.

We thought maybe they would tinker it and they would go,

you know maximum loss of x or you can have two properties but removing it completely it was a huge change and you know now that it's likely to happen it's likely to go through parliament it's likely to get legislated i don't think anyone really grasps just how big of an issue it is for the australian property market broadly and a lot of people are saying you know the government is saying not big impact on prices it won't change his rent you know i don't believe any of that

All the banks are saying that as well. But it reprices every single property in the country.

The reality is the investment market is completely cooked because when you look at current yields and current cost to hold property, it's extremely hard for everyday investors to enter the market right now and maintain negative cash flows.

And when you think about it, 70% of investors own one property and another 20% maybe own two. The vast majority of the market is driven by just individuals. It's not the big end of town. It's not people building these big portfolios, even though it says it all on social media.

It's just people buying one or two properties. And the other people buying investment properties has been a lot of rent vesting. And that strategy is completely cooked. And it just doesn't make sense, right? Younger people sort of using rent vesting. You know, that's stereotypical.

I've got equity in my home and I'm going to leverage that into properties just doesn't exist. And so...

I think that this is going to have huge impacts on parts of the market where it just doesn't make sense for investors to buy and they're driven by investors and other parts of the market maybe makes them even stronger. And I think we just really need to unpack that.

I think, you know, rather than the detail of the policy, I think what we were, you know, independent to say, how is this going to change both buyer behavior, seller behavior, you know, the banks, the

you know, the buyer's agency world and the spruikers, like it's, you know, this change, you know, basically flips all those models on our head. We've been as a business as well saying, well, what's the best advice for our clients? Like, is it shares now? Do we do it in a company structure?

Do we do it personally? Do we recommend upgrading homes? Like we have to go, we have to, really discuss that. So I think it's such a big topic and I think the media is playing it down, just using government sort of broad market figures.

And then the property people who have been built businesses based on investment philosophy come to me, I've got the secret sauce. I know where the investment properties are. That model, not only for new customers, but what are they going to say to all their existing customers?

And there's a huge challenge for them as well.

Well, okay. So the simple fact is that, you know, an investor buying a established property is going to lose the ability to offset the cost of running that property.

And typically that can run for five to 10 years and they're going to lose the ability to offset against their personal tax, which means that if you already hold a property and you're using negative gearing, you get to keep that.

But if you want to buy one from today on, you're going to lose it, right?

And even though there's this grandfather, or not a grandfather, there's a transition period, I think they call it, up until the 1st of July, 2027, which I think probably just allows them time to get this legislated, really, rather than potentially have to undo things that might not get through.

But, you know, that means that if you buy a property tomorrow and you want a negative period, you can do until the 1st of July, 2027.

And then you lose that ability and all your losses will then accrue against maybe someday when you start making an income from it, or maybe you've got a positive cash flow property, in which case, you know, maybe then you can actually offset that against that income.

You know, so that's, there will be some people that will, that potentially will still be able to go and buy established property. But what alarms me is for first homebuyers, Who, well, okay. So the people who will win will be first-time buyers who are currently buying established property and competing with investors.

Yeah.

Right. So I was speaking to one of our students from Homebuyer Academy today. He's going to an auction this Saturday and I went, what perfect timing. Right. You might lose all your competitors. There'll be first time buyers in the mix. They won't be those investors. Right. So that's good. There's a win. Right.

He, I look forward to hearing what happened. Right. What happens? That's a win. First-time buyers really have to then steer well clear of new properties because we're going to talk about the secondary market in a moment. It's going to be shocking.

They're then going to be competing heavier for new assets, brand new assets, which have been proven to underperform in terms of capital growth.

And they're going to be even worse now because who is going to buy a used, you know, a secondhand brand new property, if that makes sense, you know, but the spruikers are going to go nuts. And then the self-managed super fund salespeople are going to go nuts. You know what I mean?

You could just see that the opportunities, the opportunistic advisors, if you want to call them that out there in the property space, are just going to be in a feeding frenzy of that type of stock. Yeah. And we haven't seen that.

We haven't seen that investor stock being built probably since the last 15 years. So we are going to see a real change in what's being built, I think.

Yeah, I mean, it's been, the cost to build apartments has gone through the roof, you know, cost to build houses, not as much, but particularly when you're going up and it has gone up a lot.

And it's hence why, you know, when you look at high rise developments, it's really a lot of the high end where they can sell per square meter at a much higher price than their cost to build, and they can actually make a profit.

You know, it's going to be to see where we can, you know, developers can make it profitable to sort of, you know, flood the market with cheaper sort of apartments that both investors will buy and obviously first home buyers.

But, you know, those off the plan are going to be targeted for investors because they know they're going to be able to sell it to them with all the tax advantages.

But they're also going to, a lot of first home buyers, that's what they were buying as well, whether it's house on land packages or, or sort of high rise, you know? And so you basically just forced all of them to compete on the new stuff. I think you're right. Absolutely.

Self-managed super fund lending is going to increase. I mean, I was getting emails at 9.30 this morning. Hey, we can do all this stuff with self-managed super funds. Like I've already seen content come across all the portals. Like, have you thought about leveraging your super? What an opportunity, you know?

I did a post a few weeks ago because I sort of saw this happening. I saw if they make changes to negative gearing, what will people do? Or they'll go, well, how else can we sell investment properties? Oh, people's super funds.

And, you know, I think they have to change that because, you know, in six, 12 months time, they'll see there'll be an issue brewing there where people are leveraging up their super funds. You know, I've seen some of the big property people just basically saying, oh, well,

Still buy it and accrue those losses. I think it's about a 3% to 4% basically times your purchase price is what your loss is. So if you want to buy something at $800,000, times that by 3% to 4%, so about $25,000 to $30,000, that's how much your negative cash flow will be.

If you want to buy something at a million, it'll be $30,000, $40,000 a year with no write-off. I mean, who can afford a $30,000 or $40,000 a year to put into this property and then do that for who knows how long until it becomes positive?

Because we have no idea where interest rates are going to go. We have no idea what rents are going to do. And even though rents may go up because of this policy, that's one of the unintended consequences that is going to probably happen. Who knows how long that's going to be?

And the big issue is we've started doing borrowing capacity numbers today going, well, the banks can't include negative gearing benefits because they're only going to be for a year responsible lending. And we've already seen a huge reduction in borrowing capacity for investment properties. Like a couple that had equity maybe could have

as an example, could have borrowed 1.5. Now they can borrow a million. The rent investor basically can borrow three times their income because none of the negative gearing benefits and they're way better to buy a home. So that's going to have to play out.

And access to lending, but also people's appetite is a huge driver of prices. About 40% of lending right now goes to investors. So you're basically, and that is going to reduce dramatically.

Look, there's going to be some good that comes out of this. Like regional towns are going to have, basically their buyer pool is going to evaporate. You know, in a lot of these towns, there's interstate buyers agents, borderless buyers agents buying on bulk.

And the locals are going to get an opportunity to buy property again.

But do they now or do they wait? So I think this is one of the reasons this policy is going through is the last four years,

The city investor has bought up regional property and has pushed out locals that have grown up there, the families, they're not in the city, their incomes are restricted and the price of those properties have gone past what the locals can afford.

But also the people trying to escape the city to these regional locations are saying, well, it's not even that affordable.

And so, yeah, the capital city sort of investor who's working with this buyer's agent and pushed them all to these regions is, you know, they're benefiting, they've got the bottom line, or it's the young couple that are looking to save money for a deposit.

But the local market there, the people in that market are going, yeah, wow. My place was worth 400. Now it's worth 900. But, you know, I guess the younger couple... Now it's going to be worth 400 again. Well, I think, like, you've got a question.

Like, if you were a local marketer and you go, this is just beyond what locals can afford. Like, you can see the prices are going to fall. Like, do you just sell? Like, do you get it on the market as quick as you can ahead of these investors bailing?

Put your money in the bank. But the investors will already bail. Right. Like why, what, what is in it for an investor to, to, who is already cash strapped? Like, you know, they're, they're basically, they're already going for these affordable markets for, there's a number of reasons why they go for affordable markets.

A lot of it is really about their own affordability in terms of what they can afford to, to sustain. But also a lot of these buyers agents like to make sure they buy multiple properties. And so they keep your budget low so that they can say, look how good we are.

And we're going to get you back and do another one. So those buyers, they're not going to be buying where they're only got one year of negative gearing. Those investors aren't going to be still buying in regional areas because they only get one year left of negative gearing.

They're like, whoa, whoa, whoa, that now is not affordable.

No, they're out. So the new investors are gone. The current investors in the market have pushed it past the locals. Yes. They would be going, do I hold this or do I try to bank my money? And a lot of those are short-term investors.

They know that they're going there for a short-term growth play. And their plan was always to sell it when growth was running out. But if they're now worried about price falls because they can't sell it to investors after the locals, you would want to get ahead on the market and list it.

And if all these investors buy for the same reason, why wouldn't they just also sell for the same reason? And if your value of the property has gone from $900 to $800, you only need listings to increase a little bit.

And then the current local buyer is saying, oh, do I really want to buy now? Like, why would I buy now when I've got so much choice?

I don't think there's going to be any quick bailing. I don't think that there will be a market for it. Like you're saying, that the local buyer is going to go, whoa, hang on a minute. I'll just wait and see what happens here.

And then there's going to be a catch a falling knife. If all these investors decide to offload at the same time, it's going to be a bloodbath. It'd be fantastic for local buyers to pick up. And then people will get into a situation where they won't be able to afford to sell.

Well, I think a good thing of these investors, they can probably sell because they've, you know, because the markets have gone up, there's equity there.

And it's like, I want to just get... That's assuming that that equity is going to be retained now that investors have completely left that market. If the investors are those that have, you know, pushed prices up to that level, who is going to be able to pay to sustain those prices?

And also these people actually get negative gearing. So why would they let that go?

Because negative gearing protects their cash flow, so they can afford to keep the property right, but it doesn't protect your asset value. No, I know that. And so, you know, this is the issue. They'll go, well, yeah, I've got this lower CGT, and I'm only going to pay 25% tax.

This is great, you know, and I've still got my negative gearing benefits. Okay, but, oh, wait, that property was worth $900 late last year. Oh, wait, no, it's only worth $850. Oh, wait, it's only worth $800. Oh, it's worth $750. At some point, they go, oh... Yeah. Okay.

I've got grandfather, but my capital value is absolutely collapsed. And I think that a lot of these investors would be like, it doesn't, they do track it. You know what I mean? I think a lot of the buyers agencies, I'm really curious to see if they start to, what they pivot to do.

Do they say, oh, maybe we should sort of look to sell these or do they just sort of put their head in their sand and just basically say, oh no, nothing to look at here. I

But I do think the story here and the people who are benefiting that is those local sort of new, the next home buyer in those locations. And I think this is why this policy is getting up because I think they know that it was out of control in the regions.

I mean, all the data shows this. and just how much these regions have been going up, and particularly the properties under $700,000 in these locations. And it's just wherever the next place is.

It's in Darwin now, it was Perth, then it was Adelaide, then it's far north Queensland and regional Victoria and regional Queensland. Like it just, wherever the next place is that's affordable, the buyers agents are going. And I think there's a lot... Yeah, there's a lot going on.

This just reminds me, and this is what happens when you're around the property market for long enough, you have a memory of when things go wrong. And this really reminds me of the end of the mining boom.

Now, before the mining boom ended, and that was full of spruikers selling these new houses in mining towns. And then it was almost... I'm talking about... ridiculous yields, ridiculous growth rates. They were getting both high yield and high growth.

And it was like every barbecue you went to, every dinner party, it was like, you're mad if you haven't bought a few. And so people were buying these house and land packages. And then the merry-go-round stops, mines close. Some very famous, Murrumbar, I think is one of them,

A number of really famous, infamous areas where you see such steep growth in price and then a plummet. And some of them are still sitting around a quarter to a third of what they were worth at their peak. And we're talking now around 2012. So we're talking 14 years ago.

where they haven't got anywhere near recovering with such an artificial market and they may never recover.

And so, I don't know, some of these regional towns that have been flooded with buyers agents and their clients, I wonder if we're going to be starting to see some of those charts looking a little bit similar.

I think they're protected in these areas. If you, the buyer's agent acted like a really long-term local specialist buyer's agent and was extremely careful within that regional town where you bought the street, the aspect, the block, all the fundamentals that we've talked about, right? But that's not what they're buying.

Like the reality is they're buying anything because they're just buying the market. They're buying the suburb. They're buying the properties that are on the worst streets, the worst aspects, the flawed properties, the ones the locals don't want. They bought them at any price.

And when the market turns, it doesn't even matter about price. No one will want that property because they'll say, why would I buy in that part? I will just wait. I'll wait for something on the better streets. And, you know, you've just got choice. And so I think that's not only...

Is it hard to sell? But it's going to be really hard to sell. And I think this is where, you know, the clients are those people are going to say, hang on a second. Oh, yeah. Okay.

You did get me growth, but you didn't really take too much time to understand that local market because now I'm trying to sell it. I'm starting to realize all the flaws that we, you know, the DD we should have gone through when we bought the property.

And, you know, and I think this is the other issue that's going to come out. People are going to realize that, oh, actually, I didn't even get a good property within that location. I just got an asset.

This goes to the heart of what I worked out is fundamentally the foundation of capital growth. And I worked this out when I was a sales agent. And that is something that's going to sell well down the track.

And this is something that when there's a frenzy, everything gets competition. And when the market tightens up, buyers get very, very picky.

And you see the properties that they will, they will actually compete over rare, you know, scarce properties that are sort of particularly well located, great aspect type of properties. architectural style, et cetera, et cetera. You know, there's always those sort of prime properties in any given area.

But, you know, I reckon we're talking sort of 5% or 10%, 10% probably tops of total housing stock would fit in that category. So you really do, it's very stark, the difference between a buoyant market and what buyers will compromise on versus a tight market.

And so this budget has come at precisely the time in the market where Where even Brisbane's, you know, I've been speaking to Meighan Wells and other buyers of Brisbane say they're feeling the change in the market, right? I haven't spoken to any in Perth yet. In Melbourne and Sydney, we know about.

The bottom line is that the market at the minute across the country is suffering some serious headwinds. You know, we've got more inflation. We've got continued inflation. We've got more interest rate rises. We've got consumer confidence very, very low. We've got also each state's working at harmonizing tenancy laws.

And so that's all making it tougher. There's so many things that are really making it tough for price growth, right? There's plenty of people will say that that's a win, right? Because that's what they wanted to do is temper price growth. This is going to come in and basically kill it.

It's going to kill the markets across the country, I think, for a period of time, personally, because this is just the sort of shock that you don't need when everything else is very negative.

We've also got auction legislation, under-quoting legislation, coming in in New South Wales as well, and there's more coming in in Victoria as well. So there's just so many headwinds in the property space. And so in terms of this...

I think it's a really good point because I think that, you know, if there was a different like economic environment, we weren't worried about inflation. Interest rates were getting cut really strongly. You know, we were going to...

If we go back to 12 months ago and we're expecting the RBA rate now to be sort of low threes, if not in the twos. And, you know, and it wasn't until sort of that September, October time when... oh, actually inflation is a problem.

And then obviously we had the war a couple of months ago. And so absolutely, I think that's a huge part of this as well, is that consumer confidence is already really low. You know, auction clearance rates were already off the cliff. And I don't think that was due to the budget.

I just think it was due to the macro story and the fear around interest rates. And the other thing is that, you know, every time interest rates have been going back up, that's been cutting borrowing capacity.

Like I think people haven't, you know, it's gone back, we've gone down another 10%, not just for investors, they're off the cliff. But for first-home buyers, and I think this is what I...

I don't know how to say they've strategically thought about this, but that 5% deposit scheme that they've sort of been going for the last four or five years, and then how they've expanded it dramatically in October, I mean, I think it's pretty crazy that that is actually what they needed to do if they were going to do this change.

And I think that the take-up of that... Because if you take investors out of the market, you need first-home buyers to be able to get into the market en masse, right? And since October, that's sort of proven to be the case.

But I think, and I said it months ago, I think they're going to expand that scheme dramatically.

You know, at the moment, if you sort of were a couple and you got divorced or you broke up and you had a property together, like you're not eligible now because you used to have a property.

Like, I think that that'll be somewhat, I think, you know, it said if you hadn't had a property for 10 years, I think they'll change that to like three years. If you had an investment property, but you never owned a home, I reckon they'll do that. So

I think they'll just go full throttle on trying to encourage everyone to take advantage of like a 5% deposit scheme, which is dangerous because we've been warning about this with all our 5% deposit.

Like if you're going to do it, getting access to the debt is one thing, but you've got to be careful what you buy.

And while we spoke about the regional play, there's also in parts of every city, there's a lot of investors in certain parts of the market that still you need, particularly in the unit markets in our capital cities. And so-

And as first-time buyers, if investors do try to bail out of these assets as well, because they've gone up a lot, for example, Brisbane apartments, Melbourne apartments have even gone up a bit. So do you just bail out of those as well?

And I think first-time buyers do need to be really careful here as well, because yes, they've got less competition, but that means they've got to be still extra careful what they buy.

A hundred percent. And look, a couple of things there. The federal government is also starting to push the shared equity scheme. And that is something that is available. I don't know the actual detail of that, but everyone needs to be quite careful when they go into a partnership with the government owning property.

So there's a few traps in that. We could do a whole episode on that at some point. We won't go into that. I mean, that's an election winner for them in the sense that they go, look what we did. You know, we basically made it equitable. We opened it all up.

But they've been very careful. Think about the language they're using around prices. They're not talking about price falls. They're talking about a slowing of growth, right? Well, I think that it'll be interesting to see how that pans out. But we know it's not one market we're talking about here anyway.

There'll be different reactions and different impacts on price across the board.

I think the other thing just to remember is that like there was already issues with investors selling. So we were getting a lot more investors into the market, but we just haven't been able to get enough. Investors have been bailing.

You know, you can look at the PIPA reports, you can see rental blondes, you know, like you can see our vacancy rates in our city. Like investors have been hurting.

Like investors haven't been, you know, particularly in the capital city, haven't been able to just sort of ride this wave or want to ride the wave. The tenancy reform you spoke about as well.

And so, yeah, they could say, I've got this, but if I'm not confident I've got a good asset and it's driven by a lot of the investor market, I'm not worried about that. Like, I would really want to just bail.

Like, and I think you're going to see that, you know, when you've got 3 million investment properties, a lot of them are negatively keyed. A lot of them don't make sense.

I think a lot of investors will, even though they've got tax benefits, you know, well, God, I just can't afford to hold this.

I'm on a personal mission to help more people make better property decisions. You know, most people don't realise that they can cost themselves hundreds of thousands of dollars over the medium to long term when they make property decisions without all of the information that they need.

And what I do is help people with tricky real estate problems, which often masquerade as simple questions like, should I sell my investment property because the interest repayments are hurting or should I buy before I sell or the other way around?

You can connect with me and access all of the tools that I've created to help you make better property decisions at veronicamorgan.com.au. And there you will find resources for first home buyers, details about my buyers agent mentoring program.

You can connect with my Sydney based property management and buyers agency teams, Australia wide vendor advocacy, or ask me for introduction to the small group of buyers agents that I would personally recommend across the country. That's veronicamorgan.com.au.

If you're considering a property move such as buying your first home, upgrading, renovating or investing, the team here at Alcove would love to help you think through your decision and get the finance right. Please go to alcove.com.au to reach out.

I think we have to be careful here because, okay, now that is going to be a scarce resource. That is a scarce, that in itself is an asset, the fact that you have the ability to negatively gear this particular property. Right. You let that go. What are you going to replace that with?

You're going to go invest in shares. You know, there's probably people out there that will not do that. They will stay in that property. They will never sell that property because, well, down the track, you know, once they have positive cash flow, maybe then they look at it differently.

But the bottom line is that that is going to be something that people will you know, hold on with two hands. I don't think there'll be a rush of people to get rid of a property that is, you know, that they're able to negatively gear.

If you think back to 1985, now I finished school in 1985, so I certainly wasn't in the property industry. But, you know, 1985, I knew people in the 90s that they'd be bragging about the fact that they bought their investment property before 1985, right?

Or before the end of 1985, which meant that they never have to pay capital gains tax. And I know that those people now have started accruing, assuming they still own a property after all this time. But anybody that has an investment property that they purchased pre-1985...

they're going to start accruing a tax liability as of 1st of July in 2027. So that's part of this, which I thought was quite funny, really. And why not bring them into the fold? But, you know, Pete, there will be this significant in 2026.

People will be talking about, did you buy that before or after 2026? You know, because this is a material difference and it's a real point in time. So I do think that people who are smart will, you know, in terms of the way they look at the benefits, they won't knee jerk.

They'll be thinking, I want to hold that because I'm not going to be able to replicate it. However, a lot of people aren't necessarily that smart in their analysis of whether or not they're dealing or they're holding a good property.

Yeah, that's it.

This is where it becomes problematic. So I get a lot of people come to me and do strategy sessions. They've got a portfolio and they're now in a situation where they've got to try to divest some of them. And often the thinking around which ones I divest is really deeply flawed.

It's often around the one that's done the best. Well, it might continue to be the best performer if it's already been the best performer. So we need to look at that.

Is it just that it's been in a cycle and it's not particularly great asset, but it's actually been in a market that's had a massive growth cycle? Or is it because it's an A-grade asset, it's outperforming everything else? In which case, try not to... Get rid of that one.

Try to look at the others in your portfolio and work out whether one of them is a C grade or maybe a B minus. Maybe you need to be looking at those ones. And so often people do look at the properties that they choose to offload or they're thinking they're prioritizing to offload.

It's often got nothing to do with looking at the scarcity of the asset and thinking, Which one's going to have me better off in 10 years' time or 20 years' time? So there's a lot of much more strategic thinking that needs to go into working through a portfolio.

And if you are going to let go of that benefit, you want to be very careful that you're not letting go of a great asset at the same time. You know, sure, crap asset, get rid of it. And then look at alternative investments.

Go to a good financial advisor who actually can talk to you about more than just property. But a lot of property people don't do that. They're property through and through. So this is going to be a challenge to that.

I think you're right because a lot of the clients that you would have seen and worked with have gone acute, great investment properties. They're buying scarce assets driven by the owner-occupier. When I talk about... I love the buyer's agents.

I'm telling you, a lot of people that come to me for strategy sessions are not my clients. Yeah, that's true.

They come to me. But you get it different. But typically, the buyer's agents, you know, they are because they've protected their clients. You want to talk about the, you know, the ones that we've always gone for the local specialists and we've gone nowhere near any of this other stuff, right?

And we've seen and we see different element of portfolios, right? But if I'm honest, all the people that we see over the years, like there's a minority that go on and bought really good assets. Like that's just...

the truth like and so i think that a lot of people will yeah okay they get the tax benefits but the cgt is like a line in the sand they're going to get a valuation on you know in july 2027 and then go okay well from then i've got to pay 30 tax like is this really the the best asset that i want to hold and a lot of properties might have gone from negative gear to maybe positive gear because they've had it 5 10 15 years and they're like well

you know and i've got this equity tied up here like is this really where i want my 500 million dollars tied up so i do think you're right like a lot of people that have got good assets will say yeah like if i sell this i can't go i can't get enough that much boring capacity again i can't get negative gearing you know i've got a lot of growth there that i don't want to have to pay capital gains tax on like but i think there is just naturally a lot of people will say like yeah i just don't think this is an asset that

you know, I want to hold. And I think a lot of investors will bail. I mean, you know, I think there's 2 million investors, about a million of them have already got like negative cash flows now. Like they're not making money on a monthly basis.

They're losing money and they're going to say, well, yeah, interest rates are high. Do I really want to hold this? And a lot of people haven't made much money. You know, you look at the playing the game reports and maybe they've made a little bit.

And so they might just decide to sort of sell, which they've been doing for years. So this isn't a positive for growth. This is a negative for a lot of properties on growth. I think it's positive if you've got something that's really driven by owner-occupier markets. I mean, people can go and search.

I'm looking forward to see the 2026 census, which is obviously in a few months, but the data from that. But if you go back and look at the 2021 census, I think OpenStats have got a really good, we can go and look at your suburb and where your property is.

And you can basically see what's the owner-occupier percentage in that suburb, right? Like how many people own their property versus rent their property. And if that's really high, then you can be a lot more confident because you're going, well, this market's not driven by investors at all.

It's just driven by, and so I think there's just a few different things that people need to do to start to understand how is this going to impact their properties and

It's true, but you've got to be careful there because a lot of very, very established Sydney suburbs, inner Sydney suburbs, have a high proportion of renters. And that is because landlords have owned those properties for decades in many cases. Some of them will be pre-1985 purchases.

So Potts Point, for example, the last time I looked, was something like 68% renters.

And yet it's had phenomenal price growth over the years. So you've got to understand there's more modern or newer suburbs and buildings where you've got lots of high rise apartments, for example, very high proportion of renters. Those people, that's not what I call an established area.

And the people that own those properties haven't owned those properties for decades, potentially decades.

they've all got debt and potentially they're all using negative gearing potentially because, you know, like if you look at mascot for argument's sake and the massive development there or right or anywhere in Melbourne, in Docklands, South Bank, those areas, or you're looking in Brisbane, you know, New Farm or West End, you know, the heavily unit areas, a lot of those owners would be in roughly similar financial situations to each other, right?

So, yeah, I mean, if you look just at the amount of people that are renting versus owner occupying, you've got to understand the difference between those established markets and those newer markets. Because what you're saying about the newer markets is absolutely correct.

Yeah, exactly. And like, so that's like, you know, you might go, oh, actually now it's 50-50, right? And you go, oh, this could be a bit, but then you're right. You dig deeper and you go, well, that 50% has actually been shrinking. You know, it's actually more moving to like an owner-occupier.

So Potts' point, you know, absolutely. Like a lot of people are downsizing there. A lot of young couples, you know, childless couples are moving there. Like it's absolutely becoming more and more of a place where people want to sort of buy and make their home.

And I reckon that owner-occupier is probably going up. I mean, there's not building much there, right? Like,

That'd be interesting to check.

I think there is a period of time, like in a new housing subdivision, for argument's sake, when you've had a lot, or in a building, an apartment building, where you've had a lot of pre-sales which were investors versus owner-occupiers, you do see over the life cycle of that building or that suburb that there's a handover because the investors sell and the owner-occupiers move in.

And so there can be a real change. And some of those suburbs, you have no real... they don't really develop any personality or character until that process starts happening. And that can be a decade after it was developed.

And, and there's no real, it's hard because there's no real predictor as to which ones will do that and which ones won't do that. It's still like organic, right? But it's,

Here you've got a situation where you've got, and then you could argue, we just said earlier, there's no second buyer for these properties.

But the reality is if you've got a lot of investors and they're then going to be selling to first home buyers down the track, then first home buyers aren't the people really pushing up prices, are they? You know, they're struggling to get into the market.

The investors won't be pushing up prices at all. You don't have upgraders pushing up prices. So the sort of demographics that tend to push prices up won't be there. Right. But you can only hope that the flavor and area changes.

So that's when you do see that shift from a high percentage of renters go down to more owner-occupiers being in a building or a suburb, but then even longer. And Putts Point's been, you've got Art Deco, but you've got buildings that are over 100 years old.

So that's got just a lot longer timeline. I suspect that's been quite stable, that proportion of renters in an area like that for some time.

Yeah. And you can even look at rental bond data. I mean, in different states, you can see how many actual rental bonds are actually issued. And that data is quite easy to get, particularly in New South Wales, there's sites to do that.

And you can say, well, yeah, there was 2000 rental bonds issued last year, but now there's 4000. Okay. Well, there's a lot more recent investors in that because there's a lot more rental accommodation. And

So that would be an area where you've got, oh, this would be a bit dangerous if some of those investors want to bail. And a lot of investors, you know, owner-occupiers don't want to go where there's a lot of renters. It's just like that's what you're talking about there.

Or in buildings where there's a lot of renters, you know, they've sort of done that. They're a bit older now. They're sort of looking for more quieter places where they could raise a family or, you know, they sort of want a bit more of a quieter sort of street.

And so, you know, I think the demand for what owner-occupiers want and renters want is completely different. And so... Yeah, I just think it's got to be, it's a lot, you know, that are happening here with this change that, you know, unintended consequences are sort of going to come.

And I think if prices of properties, the ones that are targeted investors, you know, it's a big flip. If no investors are going to buy them anymore, then who's buying them? And if you get more investors wanting to sell, like who's going to meet the market? Like it's, yeah.

So the promise here is that supposedly another 75,000 first home buyers are going to be able to get in the market. Is it over the next decade? So what's that, 7,500 a year? Oh, it's going to be more than that.

It's going to be way more than that. It's going to be the, yeah.

It does make me laugh, their numbers, some of the numbers. And at the end of the day, what have we got? 100,000 first home buyers on average every year currently. Like that adds, what, 7%. So per year, 7.5% per year.

I think, you know, I do think first home buyers are the winners here if they buy existing stock. And so if the government, they're saying that this is a budget for first home buyers, then... Well done.

The unintended consequences on rent will be interesting because investors, I've talked about reasons why they shouldn't necessarily sell, but there is a lot of knee jerking.

And I guess we would caution people not to knee jerk even now because the dust needs to settle to work out really what this is happening, how this pans out. And the reality is that everybody's financial situation is different. there still will be people that can afford to buy, establish investment properties.

There won't be many, but there will be some. And, you know, that is also, you're really taking away the aspirational element of investing in property for people. you know, Gen X, my generation, boomers, we've had a great opportunity to use property to build wealth.

And that is just not going to be available. And I know that the big argument here is no one's been able to get their first home. So don't even talk about, you know, an investment property. But the reality is,

Once people get into their 40s and 50s, or maybe not 50s, but when they get in their 40s and they've got a lot of equity in their own home, they do want to start thinking about how can I use that and how can I build on that and build their wealth.

That's just the way people think, right? That's gone. that opportunity is gone maybe until the liberal government comes back. And if, if the liberal party even exists in the future.

Well, I mean, I think you're right. Like, I think there could be a time when they go and reverse this because they go, well, you know, like it's an election win, you know, and you can get enough votes that way. And people start to see massive declines in said property.

And they're like, oh, like, you know, and they, they get a very upset with labor, et cetera. So I absolutely, you know, who's to say in a few years time, it isn't unwound at the election. And, you know, like, but who's to say that doesn't happen, right?

So I do think banking on that is a pretty risky strategy, particularly if you've got properties that are going to go through a bad ride. So I think you've got to be really careful. The unintended consequences of this, you know, people are still going to want to build wealth, right?

Like they're absolutely still going to want to protect themselves and build wealth, particularly in the uncertain world we're in, right? Like it just has shown more than ever that you need, you know, a cost of living, you

you know, we have no idea with our jobs, what's going to happen, you know, having money in the bank, you know, or wealth is going to really protect you if you lose your job in the future with AI or whatever it might be.

And so people are absolutely going to, and I think the next generation are more conscious on that than they've ever been. So, but I don't think they're going to be looking at property. I think shares are,

You know, when you see the carve outs on this is that they basically said, we're not doing this for shares. So you can negatively geared shares. Yes, capital gains tax is higher. But if you hold an ETF portfolio for a decade, you're probably going to pay maybe circa 30% capital gains tax, right?

Not bad that, you know, you can release equity. You could do it off your home at a cheap rate. Lux, I think share investing is absolutely going to be a huge winner out of this. You got to be really careful investing. You know, how you go about that would be my advice.

The second thing is anything that's targeted towards the owner-occupier market, because if someone is on top of their debt, before they might have said, oh, this is okay for us. We are, you know, we're happy to live here. It's okay. You know, we don't really want to sell.

We don't want to go more debt, but I'm happy to use my equity to buy an investment property. Well, often, sometimes people say, particularly when there's more certainty around rates. At the moment, maybe not.

But as soon as there's more confidence around interest rates, and if we go to a lower rate cycle, which I'm not saying we will, but if we do, you might say that that means that negative gearing losses will be smaller, but rents have got to go up a lot and...

you know, like, so that could be a double win for going back into, you know, negative geared property because you're quite cashflow. But if we go into a lower rate cycle, I think a lot of people will just say, well, I'll upgrade my home.

I'll use, it's better for me to go to a better location in the suburb or to move to a more, a different suburb. Yes, I've got to pay stamps. You've got to pay selling costs, but,

know i'm in something too small this means i can stay there it means i could stay there in retirement it doesn't mean you know and i think that a lot of people will put that equity or that borrowing capacity into their home or shares and i think super is another thing that will be a huge winner out of this and it's no it doesn't surprise me that the labor party also with the industry super funds and there's something going on there that this will be super be absolutely people will say like i need to take advantage of my super concessional

sort of opportunity every year because I can't just rely on building wealth through property. Like I need to do other things. And I think that'll be another huge winner out of this.

Well, quite frankly, they should be doing that anyway, as in they should be looking at other things, not just property. And we've always said that. So I also think that the dust will settle, you know, we'll get a new normal and then we'll continue on.

I think also that we can see that this will have an immediate, I think an immediate reaction in the lower quarter. So it's in the property market that is where the first time buyers and the investors have been competing head to head. I don't necessarily think that's a bad thing.

I think that it could have been better handled, but I don't think it's a bad thing. I do think that the regions will benefit, as we talked about. I don't think that's a bad thing either.

Again, I think that it would have been better and less dramatic if they had allowed at least one property to be negatively geared. Anyway, they haven't. But I do think that that would have made it better, but the regions will benefit. So there's certainly some segments of the market that –

the buyers will benefit, right? Owners won't necessarily, but buyers will. Then you've got sort of the upper three quartiles, so middle and to the upper. They're not really going to be affected by this too much. Are they? Because investors aren't playing in that market. So that would just continue on.

The people who sell their lower quartile property to the first home buyers, well, they're maybe not going to have as much money to play with. So that might actually have a knock-on effect as it rolls through the price brackets. But fundamentally, this is the lower quartile that it's going to impact. Yeah.

And I think that we have to keep an eye on that and we have to be very careful, certainly advising clients around that as well.

There will be people that be thinking, oh, I'm going to bail, but I would urge caution, wait, wait and see what it's going to look like when the dust settles. The worst...

time to do anything when there's a big change is immediately that change is announced because that's when the catastrophizing is at its greatest, I think. And worst case scenario, it's just as bad as we imagine. Best case scenario is not quite as bad, you know.

So I think that, and also it's not legislated yet. So I think we just have to, we do have to be patient. I did listen to Stuart Weems' episode that he released on the morning after the podcast. We'll put the link in the show notes, actually.

I'll just give Stuart a shout out because there's always, he's very balanced and He's very measured in the way he assesses things and also he has a very good understanding of property.

But he talks about the bucket company strategy and various other things that have been used by higher net worth people to be able to distribute their earnings amongst family members and various other structures that have been put in place in order to optimise tax outcomes.

And in a way, a fair society allows the workers to not pay more tax than somebody who's able to employ an accountant to put a clever structure together. So I sort of get that as well. I get the rationale behind that.

But I encourage people to listen to that podcast anyway to give them an idea of really, I guess, Stuart's take, but also what has been included in the budget.

Yeah. I mean, I think there's been a lot of content. Hey, you know, we, this is not a big deal for us. We can use some company structures and we can do this. We can do that.

Like that is for like a very, very small portion of investors that are able to use those types of structures. They've got equity that, you know, it's not for the first time investor to sort of a sudden, you know, and so it's put out there like that.

Oh, everyone can do this and it's exciting. You know, I can set up all these structures, but actually making that work is not really the case for the mass market. And they'll go, well, I just want to target that market.

I just want the ones with a lot of cash, the ones earning a lot of money, the ones who've got a lot of equity, the ones who have got businesses that can use these structures.

And so just be really careful for that because what works for them and their clients isn't what's going to work for the mass market. And I think you're going to see pivots in every industry.

The broker industry all of a sudden, all of a sudden people's websites are going to shift from I'm an investment specialist to I'm a first-time buyer specialist to I help people do upgrades.

You can see the buyer's agents that are investment specialists and now we're going to say owner-occupier specialists and they buy in their local communities. You're going to see we don't buy established, we buy new. It's... They're, everyone's changing their model.

Like, and you know, we're not sort of sitting here going like, you know, we, we didn't have to change our model. Like, but you know, I think this is when you are tied to some, you know, this strategy and they're all cookie cutter.

They're not like, come to us investor, we won't ask you questions around your home. We won't, you know, think about options. We won't be careful about, we'll just push everyone down a model. I think that is one of the dangers when the, something changes.

And whether we agree with it and how's it going, I think there's no point even doing that. I just think right now we go, this is how it's going to change the market. And I genuinely think that they know all these things. Like they know, they've thought through the consequences of this.

Yes, they're going to have a story they had in the media, but behind the scenes, they would have considered where is this going to really hit hardest? Where is it going to fall out? And they said, well, regional properties are going to probably fall in value. We're not worried about that.

They probably thought, well, the investors, apartments investors are going to have to bail. That's okay. The first-time buyers will buy that with our 5% deposit scheme. They're not worried about these big investment organizations because they're probably like, well, I don't really mind about that. So they have thought about this.

And I do think they'll have to come up with some other options as well, like supporting first-time buyers further because they're going to have to...

you know put more demand into the market to offset the drop in investor activity so yeah really a reassess your situation don't put your head in the sand right now i i genuinely think it's a time just to just make stock take and go yep okay cool i've got everything set up the right way i've got my debt protected i've got the right assets no matter what's happening i don't mind i'm okay because i do think you've got to really just be confident on that

So we recorded this, we're releasing this on the Monday after the budget. We recorded this literally the afternoon afterwards, the Wednesday. So it's a bit raw in terms of our thoughts. I mean, we've thought through a lot of things. I hope you've enjoyed this little chat and just to get you thinking.

But as I said, please don't need you.

Yeah. Yeah. Yeah. But review would be my advice.

Don't just sit your head in the sand.

The final thing I would say to anyone who's still listening, but the only thing I would say is just because you've done something, if you're only doing it based on the information you had at that time and you felt like, I made thousands of mistakes in my life.

And, you know, at the time it felt right. I thought I was doing everything right. You know, and sometimes, you know, it's okay just to go right. Yep. I could have done that better. Maybe I shouldn't have done that. Maybe I got wrapped up in it. That's okay. All right.

Putting that on one side, what is the best thing to do right now? And don't be afraid of sunk cost buyers and making decisions. And don't be fearful that, okay, you're going to make another mistake selling it. That just plays into everything. So just...

And whoever gave you the advice to buy, please don't go back to them and think that they're going to give you independent advice. Be really careful just because they themselves are also highly conflicted to knowing that they've also been someone who's advised you to make that decision.

So them to then go, oh, actually, maybe that was the wrong decision for you and maybe we need to get out of this. Are they saying that to all their clients? It's really hard. So just try to go to someone new. It would be my advice.

Yeah. Well, yes. I think that there is a handful of really good buyers agents that you could go back to, but it's a handful. There's a lot that have a model that's been more designed around their business, building their business, scaling their business than it has been around the client's long-term success.

And I think that that's where... And often a lot of those people... actually don't have a lot of property experience either. They haven't been around the traps. They haven't seen tough times. They haven't, they haven't seen, as I mentioned before about, you know, what makes a property go up or down in value.

They haven't seen that. They don't actually know why asset selection is so important. So just, you know, yeah, be very careful.

Thanks so much.

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