A collaboration between LP Advisory Buyer & Vendor Advocates and KRIA Mortgages. Where things stand: In the 2026-27 Federal Budget on 12 May 2026, the Government announced changes to negative gearing and capital gains tax. The bill is now before Parliament and is not yet law. As proposed, the changes would start from 1 July 2027 and would limit negative gearing on established residential properties acquired after 7:30pm (AEST) on 12 May 2026. Properties already held as at that date keep the existing treatment until they are sold, and new builds, superannuation funds and commercial property are not affected. The detail below reflects the proposal as it stands and may change as the bill moves through Parliament. Australia’s proposed negative gearing changes have created uncertainty across the property market, particularly for investors who were planning to purchase a traditional, established investment property. But while many buyers are focusing on what they may no longer be able to do, strategic homeowners are beginning to realise there may still be strong opportunities available, if they structure things correctly. Recently, LP Advisory sat down with Rishi from KRIA Mortgages to discuss how the proposed rules are already influencing borrowing capacity, investor behaviour and lending strategy, and more importantly, what buyers can do moving forward. One strategy stood out immediately. Rather than purchasing a brand-new established investment property, more Australians may start turning their current principal place of residence into an investment property when they upgrade homes. In many cases, this could become one of the smartest long-term wealth strategies available under the proposed rules.

The traditional investment approach is changing

For years, many Australians followed a relatively straightforward property journey: purchase a home, build equity, and eventually purchase an investment property separately. But the lending environment and tax landscape are shifting. According to Rishi, banks are already becoming more conservative with investment lending, both ahead of the proposed negative gearing changes and within APRA’s tighter lending environment. In some cases, investors are seeing reduced borrowing capacity compared with previous years, particularly where lenders previously factored negative gearing benefits into servicing calculations. That means many investors who previously would have comfortably qualified for a standalone investment property may now find themselves more limited. At the same time, uncertainty around the proposed changes has caused some investors to pause altogether. Historically, though, markets often create the best opportunities when confidence weakens.

The ‘Upgrade and Hold’ strategy

One of the key strategies emerging from these changes is what we call the “Upgrade and Hold” approach. Instead of selling their current home when upgrading, homeowners may consider retaining their existing principal place of residence and converting it into an investment property. Why is this significant? Because under the proposal, properties already held as at 7:30pm on 12 May 2026 keep the existing negative gearing treatment until they are sold. Only established properties acquired after that date face the new limits. So a home you already own, then later convert to an investment, may retain the current treatment, subject to your own accountant’s advice on your circumstances. In simple terms, the right buyers may be able to:

retain an appreciating asset
continue building long-term wealth
maintain exposure to Melbourne’s property market
leverage existing equity
potentially retain current tax treatment on an existing property
avoid trying to re-enter the market later at a higher price point

At the same time, they can upgrade into a larger or more suitable family home without completely resetting their investment journey.

Is your current home the right property to hold?

This is where the strategy needs to be looked at carefully. Keeping your current home as an investment can be a strong move, but only if the property has the right fundamentals behind it. The question is not just, “Can I keep it?” It is, “Should I keep it?” At LP Advisory Buyer & Vendor Advocates, this is where we help clients assess the property from an investment lens. We look at location, rental demand, future resale appeal, land or building scarcity, growth potential, and whether the numbers actually support the strategy. Some homes are worth holding because they have strong long-term fundamentals. Others may be better sold, with the equity redirected into a stronger asset. We cover this in more detail in our guide to negative gearing and Melbourne investment property. That distinction matters. The right strategy is not just about keeping property. It is about keeping the right property.

Property investing is becoming more strategic

One of the biggest takeaways from our conversation with Rishi was that property investing is becoming less about simply “buying another property” and more about long-term strategic planning. That includes understanding:

borrowing structure
future lending flexibility
sequencing purchases correctly
preserving borrowing power
planning for future investments now, not later

This is where having both a mortgage strategist and a buyer’s advocate working together can be incredibly valuable. At KRIA Mortgages, the focus is not just on what a buyer can borrow today, but on how their lending structure supports future growth and flexibility. At LP Advisory Buyer & Vendor Advocates, our role is helping clients acquire the right assets in the right locations, negotiate strongly, and avoid the costly mistakes that can affect portfolio performance long term.

SMSF and commercial property may become more attractive

Another shift likely to emerge from the proposed rules is increased interest in SMSF and commercial property investment. Importantly, purchasing property through superannuation has not been targeted in the same way as buying established investment properties in personal names, and superannuation funds are specifically excluded from the proposed changes. Likewise, commercial property is not affected. You can read more in our guide to buying property through your super (SMSF). For strategic investors, this may create a different pathway for future acquisitions once they have upgraded their principal residence and retained their original property. A potential long-term sequence may look like:

Purchase a first home
Upgrade and retain the original property as an investment
Purchase through an SMSF structure
Diversify into commercial property over time

Of course, every buyer’s financial position is different, and professional financial, lending and accounting advice is essential before making any decisions. For SMSF lending and finance structuring, speak with qualified professionals such as KRIA Mortgages and your own accountant or financial adviser. What is becoming increasingly clear is that the investors who adapt strategically may continue to build strong portfolios despite the changes.

Why some buyers are seeing opportunity right now

Whenever major policy changes are proposed, uncertainty follows. And uncertainty often causes hesitation. Right now, many investors are sitting on the sidelines waiting to see what happens. But historically, some of the strongest buying opportunities emerge during periods when sentiment weakens while long-term fundamentals remain strong. Melbourne continues to benefit from:

strong population growth
infrastructure investment
limited quality housing supply
long-term owner-occupier demand in established suburbs

For buyers who already own property, the next few years may present a rare opportunity to reposition strategically before the changes take effect. For buyers considering their next move, whether that is upgrading, investing or retaining an existing property, working with an experienced buyers agent in Melbourne can help ensure the strategy aligns with both lifestyle and long-term financial goals.

The first step is understanding your options

Every buyer’s situation is different. For some, retaining their current home may make perfect sense. For others, restructuring debt, exploring SMSF opportunities or considering commercial property may be more appropriate. But the first step is understanding what is realistically possible. A discovery conversation with the right mortgage broker and buyer’s advocate can quickly establish:

borrowing capacity
equity position
upgrade opportunities
whether your current property suits long-term investment
future portfolio strategy
lending structure options moving forward

Because while the rules around negative gearing may be changing, strategic property investing is far from over. If you are considering upgrading your home, retaining your current property as an investment, or exploring your future borrowing capacity, get in touch with LP Advisory or speak with KRIA Mortgages to better understand your options under the proposed lending and investment landscape.

About the authors

LP Advisory Buyer & Vendor Advocates specialise in helping Melbourne home buyers and investors purchase high-quality property through strategic acquisition, negotiation and off-market access. KRIA Mortgages specialise in strategic lending solutions, portfolio structuring and finance strategies tailored to long-term property growth. This article is general information only and does not constitute financial, tax, lending or legal advice. The negative gearing changes described are proposed and not yet law, and the detail may change as the legislation moves through Parliament. Always seek advice from a licensed mortgage broker, accountant and financial adviser before acting.