Negative Gearing Just Changed: Where the Opportunity Has Moved

https://www.youtube.com/watch?v=jYe58HN3Cy0

If you own an investment property in Australia, or you plan to buy one, the rules have just shifted. After the latest budget, the negative gearing changes have made established property a very different game. Get this wrong and you could tip money into the wrong asset at the worst time. Here’s what changed, and where smart investors are moving now.

Hit play above to watch the full breakdown.

What is negative gearing and why do investors use it?

Negative gearing in Australia is when the cost of holding a rental is more than the rent it earns. So, what is negative gearing in simple terms? It means that loss comes off your taxable income, so you pay less tax.

Say a $500,000 rental costs you $10,000 a year to hold, and the rent falls short. You claim that loss against your income. On a $100,000 salary, you’re then taxed as if you earned $90,000.

It mainly helps people on higher incomes. It also lets you hold more, because the tax saving feeds into what the bank will lend.

What are the negative gearing changes in the new budget?

The negative gearing changes mean the tax break now only applies to new properties. Buy an established home to rent out, and you can’t claim it anymore.

This shifts what people can afford. Brokers are already redoing pre-approvals. A buyer who could afford a $1 million rental before now stretches to about $800,000.

The government’s aim is simple. It wants less investor competition for existing homes, so families and first home buyers get a fairer go.

How can investors still use negative gearing now?

You can still claim the tax break by building new. Buy an old house, knock it down, and put up two or three new homes. You can rent these out and negatively gear them.

The value sits in the land, not the building. Buildings depreciate, but land grows over time. So a smart investor develops the site and gets brand new townhouses at wholesale cost, not retail.

New builds also bring strong rents, builder warranties and low maintenance. Just don’t rush in blind. Look for a high land component and a quality build.

Is Victoria a good place to invest right now?

For long-term investors, Victoria looks like a buyer’s market. Prices have lagged other states, so there’s room to grow.

Sentiment is negative, but sentiment always shifts. Melbourne’s median price sits well below where Perth and Sydney have run to. There’s an old saying: be greedy when others are fearful. Investors with a ten year horizon are buying here for that reason.

These changes haven’t closed the door on negative gearing. They’ve simply moved it. Build new, hold for the long term, and the tax break is still there. In a soft market like Victoria, that patience could pay off well.