5 property opportunities investors shouldn't ignore after Labor's tax reforms

For much of FY26, investors thought interest rates would determine the next move in Australian property.

Instead, the Federal Budget became the Black Swan nobody saw coming.

Labor's overhaul of capital gains tax and negative gearing has potentially altered the economics of residential property investing, forcing investors to rethink where they deploy capital.

At the same time, elevated interest rates, persistent inflation, soaring construction costs and Australia's chronic housing shortage continue pulling the market in different directions.

According to Ray White Chief Economist Nerida Conisbee and Dexus Head of Real Estate Securities Mark Mazzarella, that doesn't spell the end of property investing - but it does mean the next winners may look very different from the last decade.

Conisbee expects the market to go through a period of adjustment rather than collapse.

"I think the most bearish declines are being forecast by Morgan Stanley... they're saying a 10% fall across the board. I don't think it'll get to that level. It may not even get to 5% nationally," she says.

She expects investor-heavy markets, particularly established homes below $1 million, to bear the brunt of any weakness, while undersupplied regions and high replacement costs should help support property values more broadly.

So where should investors be looking now?

1. Listed property trusts are back in the conversation

If there's one area Mazzarella believes has become relatively more attractive following the Budget, it's listed property.

Unlike residential housing, A-REITs haven't been directly targeted by Labor's reforms. Their higher income profile and typically more modest capital growth may also make them relative beneficiaries of the new indexation regime, strengthening their appeal.

"Where you are getting a higher degree of your total return as income, that becomes relatively more attractive, and we would definitely expect investors to look more closely at commercial real estate and A-REITs in particular," he says.

But the investment case for A-REITs isn't just a tax story. It's also a valuation story.

For much of the past decade, investors have chased technology stocks, and while past performance isn't indicative of future returns they have been a solid bet. A simple Nasdaq ETF has returned around 20% a year over the past decade, while Australian A-REITs have generated closer to 6% annually - most of it from income rather than capital growth.

"A-REITs are trading at discounts of anywhere up to 20 to 30% on average," Mazzarella says.

Asked where he'd deploy fresh capital today, he nominates Stockland (ASX: SGP) and Arena REIT (ASX: ARF).

He believes investors have become overly focused on Stockland's residential exposure while overlooking its diversified portfolio spanning shopping centres and an emerging data centre platform. Importantly, its masterplanned communities continue delivering affordable new housing, one of the few residential segments still benefiting from negative gearing.

Arena REIT is his second pick, thanks to its long leases to childcare operators and dependable cash flows.

"We're looking for durable cash flows," he says. "We want those assets that can benefit from genuine rental tension, but also have a really good management team and a defensible capital structure."

2. New-build residential

While existing investment properties have become less attractive under Labor's reforms, Conisbee believes newly built homes remain well placed.

Because investors can still access negative gearing on new builds, she expects some capital will naturally migrate towards that part of the market. That could provide a meaningful tailwind for developers focused on masterplanned communities and apartment projects.

"The listed space or the listed companies will focus on that and make sure that the product that they produce is attractive to investors to take advantage of that," she says.

She cautions, however, that tax shouldn't be the only consideration. Investors should focus on projects with strong rental demand and owner-occupier appeal because a property is only "new" once.

3. Southeast Queensland

Not every state or city faces the same outlook.

Conisbee believes Southeast Queensland remains one of Australia's strongest residential opportunities thanks to robust population growth, chronic housing undersupply and infrastructure spending ahead of the Brisbane Olympics.

"We do expect to see that market overperform relative to some other cities over the next few years," she says.

By contrast, she notes Victoria has been much better at delivering housing supply, helping keep price growth more subdued despite ongoing population growth.

4. A tighter rental market favours landlords

The Budget has also changed the way investors should think about returns.

Traditionally, investors were willing to accept low rental yields because negative gearing cushioned the losses and capital growth drove returns.

Conisbee says that equation is changing. As fewer investors enter the market, rental supply is likely to tighten, placing upward pressure on rents. While that's bad news for tenants, it could improve cash flows for landlords who remain invested.

"I think the biggest losers really are renters," she says.

"Very sharp increases in rents will really benefit investors, particularly those involved in build-to-rent."

Mazzarella says he's already seeing that dynamic emerge.

"Anything that takes investors out of the market, as Nerida mentioned, is absolutely going to take supply out for renters," he says.

"We've seen in Melbourne where I am already, a unit you could rent out for $450 a week is now closer to $600 a week - that's a massive increase."

5. Don't overlook the family home

Another unexpected winner is the family home.

Investment property still has an important role in building long-term wealth. But after the Budget, the tax-free status of the family home has arguably become one of the most valuable concessions left in Australia's tax system.

"The family home is a good investment strategy primarily because it does remain tax-free," Conisbee says.

"As a result, any money you're putting into it is, when you decide to sell, pure cash. There's not really any major taxes. There's no capital gains tax, for example."

For investors deciding where to allocate their next dollar, the after-tax equation has changed. Paying down the mortgage or investing in the family home may now deserve greater consideration than buying another investment property.

Risks investors shouldn't ignore

Every opportunity comes with risks, and both experts caution that investors shouldn't assume the adjustment will be smooth.

For Mazzarella, the biggest variable remains inflation and the path of interest rates, particularly for commercial property.

"I think over such a short period of time... it's hard to go past the pathway for interest rates and, of course, the inflation outlook," he says.

Conisbee agrees, adding that elevated construction costs, weak investor sentiment and uncertainty around how buyers respond to the new tax regime will all shape the next phase of the housing cycle.

"I think sentiment is another one. We know sentiment is very low towards residential property at the moment, so how long that will take to recover... it's still too early to tell," she says.

Watch the full discussion

In the full discussion, Conisbee and Mazzarella also explore:

• Whether Labor's tax reforms will actually improve housing affordability.
• Why Australia's housing shortage - not tax policy - remains the biggest challenge facing the market.
• Whether the current downturn is a temporary adjustment or the start of a more prolonged slowdown.
• The outlook for office, retail, industrial, childcare and data centre property.
• Why A-REITs are trading at discounts of up to 30% despite improving fundamentals.
• The biggest risks property investors should watch over the next 12 months.