Every so often, policy shifts create quiet ripple effects that take time to show up in the data but are obvious in behaviour. The recent Australian Federal Budget feels like one of those moments. For decades, Australian property investment has been underpinned by two pillars: negative gearing and a favourable capital gains tax (CGT) regime. That combination made leveraged property investment not just viable, but highly attractive. This year’s budget changes that equation in a meaningful way. From July 2027, negative gearing on established properties in Australia will effectively be ringfenced, meaning investors won’t be able to offset losses against their personal income. At the same time, the long-standing 50% CGT discount is set to be replaced with inflation indexation and a minimum tax rate on gains. In simple terms, the tax efficiency of holding existing residential property has been dialled back. Policy intent here is clear - encourage new supply, level the playing field for first-home buyers, and shift investor behaviour. Sounds great in theory, but often the law of unforeseen circumstances kicks in. What can happen is that we see a reduction in supply as investors leave the market that puts further pressure on rents. That is what happened in New Zealand in 2021 when interest deductibility against rental income was removed. That, along with rising interest rates put pressure on landlords who then tried to pass on as much as they could to tenants.
There’s already a growing narrative across the Tasman: that New Zealand is starting to look relatively attractive again. Not because our system is perfect, but because our tax system is more favourable to Property Investors. New Zealand’s tax framework for property remains fundamentally different. There’s no broad-based capital gains tax, instead relying on a bright-line test (now effectively two years for most new acquisitions). Hold beyond that, and the gain is generally not taxed in the same way it would be in Australia. Add to that the full restoration of mortgage interest deductibility from April 2025, improving investor cashflow dynamics, and you start to see the contrast sharpen. It’s not that New Zealand has suddenly become a tax haven, it is just more favourable for investors who favour residential property as an investment strategy. And investors are very good at spotting gaps.
Why This Matters for New Zealand
Capital is mobile, particularly when it comes to property investment across relatively open markets like Australia and New Zealand. Australians are not subject to the same barriers as many other offshore buyers when investing here, and when you combine that with exchange rate movements and relative pricing, the story becomes more compelling That doesn’t mean we should expect a flood of Australian capital overnight. Economic fundamentals still matter - Australia is still a larger, deeper market with stronger wage growth and scale. But marginal shifts are where markets move first. Even a small increase in offshore demand - particularly in provincial or regional markets, can have an outsized impact. For a business like Property Brokers, that’s where this becomes relevant.
Regional New Zealand often presents a different value proposition: stronger yields, lower entry prices, and in many cases, less volatility. If Australian investors begin testing the waters here, it’s realistic to expect interest in provincial markets where the numbers stack up more clearly from a cashflow perspective. That aligns closely with where we operate.
So, What Should We Be Watching? Plenty. The obvious place to start is this year’s general election. A Labour led government would introduce a CGT and we may see a return to interest deductibility being banned, though I believe we may have a softer policy around this. Inflation and the prospect of increased interest rates may also have an impact. Also, my view is that we are going to see a relatively flat rental market across the country though some regions will continue to see strong growth, particularly in the South Island. One cannot help but feel that Australia has not learned from New Zealand’s experience. We have since reversed course. Time will tell as to whether this was successful or not. In the meantime, it could be to New Zealand’s benefit.
