Negative gearing reforms set to reshape where capital flows, CommBank research finds
Federal Budget changes to negative gearing and capital gains tax are prompting Australian property investors to reconsider established strategies, with many now looking towards commercial property as an alternative, according to research from Commonwealth Bank.
The Budget abolished negative gearing for established residential properties purchased after 12 May, with the changes taking effect from 1 July 2027.
Commercial property and other asset classes are not affected by the negative gearing changes and will continue to be taxed under existing arrangements.
Kevin Stanley (pictured right), director of commercial property research at CommBank, said investors were contending with a more complex environment as policy shifts, interest rates and market dynamics converged.
"These are big decisions...these are kind of once-in-a-generation type decisions that need to be made," he said.
Stanley noted there had been "a very significant investment into the residential sector" over the past year, but said the end of negative gearing "really does beg the question: 'Where will that capital go and where will those investors go?'"
"One of the biggest possibilities is that formerly residential investors will start to look increasingly at commercial property," he pointed out. "It means really a time for investors to stop, reflect, do some research and figure out which part of the investment landscape they want to focus on."
Rental supply under pressure
Stanley said the changes to residential investment settings were likely to constrain rental supply in the near term.
"The pool of rental properties is likely to shrink… and you're likely to see the vacancy rates in residential stay quite low and the upward pressure on rents continue for the foreseeable future," he said.
Longer development timeframes may also deter investors from new-build housing. "New buildings could take a couple of years," he said, adding that many investors "don't want to wait" and prefer to "get their properties on the market virtually straight away."
Stanley noted that build-to-rent was an expanding segment, with "around 15,000 Build-to-Rent apartments already developed in Australia and it's growing very quickly." However, he acknowledged these developments "do take a long time to build," pointing to a likely near-term supply gap.
Commercial sector draws interest
Stanley said commercial property offered investors a different set of characteristics as conditions shifted. "Commercial property… has a higher return and has more stable returns, longer-term leases. You're locked in," he said, adding that negative gearing "still applies" to the sector.
Private investors remain the bedrock of commercial property activity. "It tends to really be the foundation of commercial property investing year in and year out," Stanley said. Private buyers accounted for approximately 33% of market activity so far in 2026, he said. These investors typically focus on smaller assets — including smaller warehouses, shops and childcare centres — with average sale prices below $5 million.
Transaction volumes moderate
Across the commercial property market, transaction activity for assets priced above $1 million had eased through to the end of April, Stanley said, reflecting the broader pressures of 2026.
Despite this, "for the market to still be tracking just 12% below where it was last year is actually not a bad result," he said, acknowledging that interest rate increases and global uncertainty had weighed on investor sentiment.
Income generation continued to underpin the sector. "Rents continue to increase across all of the property sectors incrementally" while yields "are relatively stable at the moment," Stanley said.
Within commercial property, Stanley identified retail as a particularly strong performer. "The overall vacancy rate in shopping centres around Australia is below 5%," he said, pointing to strong population growth and limited new supply as supporting factors. For investors, he described this as a "structurally perfect combination" of robust demand and constrained availability.
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