Property investors are navigating a changing market. Proposed changes to negative gearing and the capital gains tax (CGT) discount are prompting many investors to reassess their strategies and take a closer look at the income their property can generate.
From 1 July 2027, negative gearing for residential property investments will be limited to new builds. At the same time, the 50 per cent CGT discount will be replaced with cost-base indexation and a 30 per cent minimum tax rate on capital gains. Against this backdrop, new investor loans fell by 8.6% in the June quarter, while the value of those loans declined by 10.2%.
Property price growth has also softened across many Australian markets. Higher interest rates, economic uncertainty and changing tax settings have all contributed to more cautious investor sentiment. National house prices are forecast to decline by 1.1% in 2026, while unit prices are expected to increase by 2.2%.
However, investors are looking beyond property prices alone. Rental demand remains strong in many parts of Australia, with low vacancy rates and limited rental supply continuing to support rents.
As the market evolves, rental yield and cash flow are becoming increasingly important factors for investors when assessing a potential property.
While property market conditions have become more challenging for buyers and investors, Australia’s rental market remains tight.
National vacancy rates were just 1.3% in July 2026, while total rental listings remained 16.7% below the five-year average. This means renters are still competing for a relatively limited supply of available properties in many areas.
Strong rental demand has helped maintain upward pressure on rents, even as property price growth has slowed.
According to KPMG, rental growth is expected to remain above its long-term average through the remainder of 2026, supported by ongoing housing supply shortages.
For property investors, continued rental growth could provide an important source of income and help support cash flow. It also highlights why rental demand is becoming an increasingly important consideration when comparing potential investment properties.
Gross rental yield is one of the key measures investors can use when assessing a property. It compares the property’s annual rental income with its purchase price or current value.
Unlike net rental yield, gross rental yield doesn’t take ownership costs such as property management fees, maintenance, insurance or council rates into account. However, it can provide a useful starting point when comparing properties in different locations.
With rents continuing to rise while property values have softened in some markets, gross rental yields have been trending higher.
According to Cotality, national gross rental yields reached 3.79% in August, their highest level since September 2019. Yields are considerably higher in some smaller capital cities, reaching around 6.3% in Darwin and 4.4% in Hobart.
This shift reflects a broader change in investor priorities. With capital growth becoming less certain, rental income and cash flow are playing a greater role in how investors assess opportunities.
Higher yields may also help some investors manage the impact of higher borrowing costs, although the overall financial position of each property needs to be considered carefully.
Changing tax settings and market conditions could lead investors to place greater emphasis on rental yield and ongoing cash flow, rather than relying primarily on future capital growth.
Established investment properties that generate a loss may no longer provide the same tax advantages under the proposed changes. At the same time, investors accepting negative cash flow in anticipation of significant long-term capital growth may need to reconsider how they assess the potential tax implications of their investment.
This could influence the types of properties and locations investors consider.
Markets where rental demand remains strong relative to property prices may attract greater attention, including some regional areas and more affordable outer-suburban locations. Units and apartments may also appeal to yield-focused investors, as they can sometimes provide stronger rental returns relative to their purchase price than detached houses.
However, rental yield shouldn’t be considered in isolation. Vacancy rates, potential capital growth, property expenses, borrowing costs, local supply and demand and your broader financial position all need to be considered when assessing an investment opportunity.
For investors considering their next purchase this spring, taking a balanced view of both income and growth potential could be more important than ever.
Whether you’re considering your first investment property or looking to grow or restructure an existing portfolio, having the right finance strategy can make a difference.
Our team can help you understand your borrowing options and explore finance solutions that align with your investment goals.
Get in touch with 1st Street today to discuss your property investment finance options.
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