Ep 84. The Budget Just Changed the Math for First‑Home Buyers
If you’re a first‑time buyer in Sydney, you’ve probably heard a lot of noise about the federal budget — and most of it misses what’s actually happening on the ground.
In this episode, I break down the real impact of the 2026 budget on first‑home buyers, rentvestors, and anyone planning to buy in the next 6–12 months — without the hype, fear, or headlines.
We talk through:
What the budget actually changed (in one minute flat)
How the new negative‑gearing and CGT rules really work
Why new builds are being pushed — and why I never buy them
What these reforms mean for rentvestors, owner‑occupiers, and existing investors
Why first‑home buyers may suddenly have more negotiation power
How off‑market listings and private treaty sales are shifting the landscape
What the first‑home guarantee and Help to Buy schemes mean for you
Why you shouldn’t make 2026 decisions based on a 2027 policy
Whether waiting will help you — or cost you more in the long run
And most importantly, what all of this means for your buying strategy — whether you’re ready to act now or still preparing behind the scenes.
Speakers in today’s episode:
Michelle May - Michelle May Buyers Agents
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Michelle:
If you're a first-time buyer in Sydney and you have been watching the news, you have probably heard a lot of noise about the federal budget. So I didn't want to jump in straight away. I wanted to give it a bit of time to just see what's happening in the market and give you my two cents worth. Some of it is genuinely useful. Some of it is probably completely being oversold. Most of what's actually missing is what's actually happening on the ground.
The budget paper is, now, one story, the market is doing something else in response, and if you're buying in Sydney in the next six to twelve months, one thing's probably going to matter a bit more than the other. I would say that the budget didn't fix Sydney property. I don't think anything was really going to do that, but it did set a few things in motion that the headlines aren't capturing.
Today's episode is all about the budget summary in one minute flat because you've probably heard too much of it already. And then the rest of the episode is what I'm actually seeing in Sydney and what that means to you, what you're going to do about it if you're ready to act or if you're not ready to act. Welcome to the Buy Your Side podcast. I'm Michelle May. Now here's everything you need to know about the budget itself in one minute. So two things happened. Number one, the first home guarantee, the income caps and the place limits came off the back of the 1st of October last year and the Sydney price cap went up to 1.5 million at the same time. Now the 2026 budget confirmed that so the doors that opened in October are staying open and the 5% deposit you know with the no LMI no income test so that's staying firm where it is. Number two is the big big change in negative gearing and CGT capital gains tax.
So this is sort of the big headliner. From the 1st of July, 2027, if it passes parliament, anyone who buys an established investment property after 7.30 on the 12th of May, so before they announce the budget this year, would lose the ability to offset rental losses against their wages. But new builds will be completely exempt from the negative gearing change.
Separately, the 50% capital gains tax discount that people are currently enjoying will be replaced from the 1st of July, 2027 with an inflation index system. But there will be a minimum effective tax rate of around 30%. So the CGT change applies from gains accrued from the 1st of July, 2027 onwards, regardless of when you bought and existing investors are grandfathered partially, but not on everything. So we'll get into exactly what partially means in the next bit. So I guess a huge, bold announcement. Labor has been coping with a lot of slack for this. A lot of people are up in arms and you know, the biggest story is what is the market or what is the market already responding to after this budget has come through?
Firstly, I wanted to spend a few minutes on the grandfathering because most of the headlines have been framing this as like a clean cut drawn line in the sand from the 12th of May, but it isn't. I think the line cuts very differently depending on which side of it you were already standing on, right?
It cuts very differently from, so which part of the reform you're talking about. If you already owned an investment property before the budget, it means you keep the negative gearing rules, full negative gearing in the ordinary way for as long as you hold the property. That part is forever until you sell. But the capital gains change is where it gets messy because existing investors get the 50% discount only for the gain that was accrued up to the 1st of July, 2027. From that date onwards, everyone is on that new indexation, that 30% minimum tax system grandfathered or not and so the tax office will have all the investment properties valued at that date. The 1st of July, 2027. Anything before it gets the old treatment, anything after it gets the new treatment. Even existing investments aren't fully shielded, they're shielded on the cashflow side, so is negative gearing. But the capital gains tax moving forward will be the same for everyone else for any future growth.
But of course, people most affected by this aren't actually current investors, right? They already own, they're gonna keep negative gearing and while, you know, the capital gains tax will change for them, in my opinion, it's still money that they're making for the future. So, in my humble opinion, they can't be all that upset. The people most affected are the ones who are actually trying to get on the ladder for the first time because a lot of them, a huge proportion of first home buyers are actually rent investors because who can afford property nowadays when they're where they're actually trying to live in many circumstances so they rent in the place that they want to live or have to leave in order to get to work every day, where their friends are, have the lifestyle that they want and then they buy something. Somewhere else where they can afford it right so somewhere cheaper. They negatively gear that and then use that tax break to make the cash flow work, build the equity over 10 to 15 years and then eventually upgrade into where they actually want to live. However that equation no longer applies because of the budget now. They're saying, no, basically, effectively, if you want to be a reinvestor on established properties, you're out. No longer an option to negatively gear unless they buy a new property.
New builds are the one category that escapes both reforms. So you can still negatively gear a new build and on the capital gains tax, investors in new builds get a choice when they sell. So they can elect the old 50% discount or they can use the new indexation system, whichever gives them a better outcome. And they don't have to decide when they purchase, they decide when they are ready to sell. So that's a real tax concession. And of course, the
the government did that very deliberately to push investor money towards new construction. So how do I feel about this? Well, let me be extremely clear on this. I do not buy new builds. I do not buy off the plan, not for myself and not for my clients, full stop. I have spoken about this before, but let me just reiterate it here again.
Firstly, depreciation, because buying new is like buying a new car and the moment the developer hands you the keys, you've already lost money, right? It's like driving your new car off the forecourt, bye-bye to several thousands of dollars for the privilege of being the first one to soak up that new car smell. It’s the same with properties. They shed value on day one because you've paid for the developer's margin, the marketing budget, the sales commission and the off the plan premium. My team and I see that time and time again, new builds take about five to seven years to fall in line with established stock and if people have to sell within that period of time, there is a real risk that you lose money, that’s not great.
Secondly, build quality and I've been harping on about this for a long time now, if you've been listening to me for a while.
Building defects is not a rare bad luck kind of story. They are a structural feature of how this industry has operated for the last two decades. Currently, major defects are at about 53% of all new build properties. Now, of course, I've been banging on about this, that the conflict of interest in the privatization of certification is so glaringly obvious, it just smacks you right in the face. But apparently it's okay. So if you as an owner buy, want to buy new off the plan, you could end up with a whole host of issues. You know, there's cladding, waterproofing, cracking, acoustics issues, know, strata disputes where you have to take the builder
to court that ends up in high court and I'm talking millions of dollars spent on just getting things fixed. Not worth it in my opinion.
Thirdly, and this is a bit that actually nobody really talks about enough in my opinion, is that you don't know the community. So when you're buying an apartment or when you're buying into a complex, you don't know how the strata are going to function.
The next period of time because you have no history, have no strata minutes, you have no notes and you don't know who your potential owner or neighbors are going to be. So you're buying a property and a community site unseen on the face of some drawings, all right? And as a buyer's agent, my entire job is to know a property, the risks, the pitfalls, know the good, the bad and the ugly for my clients, so the property, also the community, if you're buying it at Estrada, before I recommend my clients commit their money to it. Look, I think with new builds and off the plans, because you have no history, you skip that whole risk factor altogether. And I just, I would not be willing to purchase blind effectively in this scenario, and I wouldn't expect my clients to do that either.
When the budget tells first time investors that new builds are the only escape hatch from the negative gearing reform. What the budget is actually doing is funneling rent investors towards what I'd argue is the highest category risk of residential property in this country. And, now, it deserves a much harder look than most of the analysis has been giving it. I think you need to think very, very carefully and, the rent versus, are left with a choice, you buy in a market where the numbers no longer work in terms of not being able to negatively gear, buy high risk, newer off the plan or wait.
You've got the three groups, you've got your existing investors keep their negative gearing and they share the capital gains tax change with everyone else come July 2027. You've got your own occupiers wanting a second property potentially, as an investment, lose that negative gearing on established stock. The only way they can get that negative gearing is on new builds and then you've got your rent investors who do not even own anything. And they thought their workaround was, getting something negatively gear it and live where they want to be. But their only option now is to buy new.
It’s a huge blow. Not great at all. Now, if you are listening to this and you want to be your own occupier, right? And you haven't bought anything yet, you're a first home buyer and you have your deposit, you've got your pre-approval, you know your area, you're ready to act. This is what this market means for you specifically. It is not a life changing transformation. The market's not gonna crash, but...
It's good news in a way because you have more negotiation room than you have had in at least the last two, three, four years, because there's going to be fewer competitors at open homes. Now, there's going to be fewer investors willing to outbid you because negative gearing is now no longer part of the equation. I know that already the banks and the lenders have started reassessing investor loans to no longer take into consideration that negative gearing even though it hasn't even been passed yet and so investor budgets have come down quite significantly as much as 20 percent and as an owner-occupier you are now having to deal with less competition from that segment of the market.
The other thing is also that what I've been seeing is that the vendors are more open to a deal because they don't want their property going to auction, not selling because all of a sudden there's less interest. And so if you have your finances sorted and everything ready to go, this might be a moment where being ready actually really pays off. The other thing that I've really noticed in the last couple of weeks and months really is that listings are shifting off market and not only off market, but also from an auction campaign to private treaty. So for sale here. The buyers who win in this kind of market are really the ones that have got the relationships because obviously not everything is going to be on domain and real estate anymore. There's a lot more hiding behind the scenes as ever. So if you've got the relationships to still find those off markets,then you're in for a good time. So that could mean one of three things. How do you have those relationships? First, you could hire a buyer's agent, because they have the relationships. Secondly, you take the time to build your own relationships with those selling agents in your suburbs and stay on top of their list, you're ready to go and potentially find things that way or you just have to accept that there's fewer opportunities than those people who are doing those two things and know, either, one of those three is a,fair choice, but I think it's realistic for people to understand that fewer listings are going on the full open market right now because the whole market is, kind of hit and miss. And so a lot of that stock is going directly to buyers agents. I, myself, my team and I are most certainly seeing that change happening.
That's also because agents are directly saying, listen, we know you have got a committed buyer on your hands. Let's do a deal. Yes, just be very mindful of that. Now, thirdly, you've got the scheme. So quick and practical, if you qualify for the first home guarantee, factor it in, 5% deposit, no LMI, no income cap.
Purchasing wise is 1.5 million for Sydney, including the Illawarra and Newcastle, and 800,000 for the rest of regional New South Wales and if you and your partner together earn less than 160,000, then the help to buy could be an option as well. So with a 2 % deposit, the government takes equity. One thing to note, you can only use one or the other, not both. That would be nice, but no.
That might be really an option for you as well so make sure you talk to a really good broker and tell them to run the numbers on your specific situation. Fourth, and I think most important is don't be paralyzed by the noise about all this, know, budgetary changes and negative gearing and blah, blah, blah, because it is factually a 2027 problem at the earliest and it might not happen at all. They still have to pass it through everything.
Everybody has to sign off on it. So if you are buying a home to live in, not an investment property, the reform doesn't actually change your tax position as such. It changes the behavior of the other buyers, which we've already covered and my opinion is that don't make a decision in 2026 to buy or not to buy based on what might happen in 2027, right? Don't give into, all the markets are going to crash and all that kind of stuff. If you find something that you love and you can afford, make your move, right? Now, if you are not ready yet, and you might be listening to this podcast just to do your research, I don't think that the market as such is going to change dramatically. It's not going to crash by 30% and all that kind of stuff. Sydney is still one of the most expensive cities in the world to buy in. The first home buyers going with a no income cap is a help, but it's not.
It's not a transformation, right? Because all it's done is bring more buyers into that up to that 1.5 point. And like any basic person who's taken economics 101 could have told you at the time prices have gone up. The budget is really not going to change anything that much. But what I would say is that, I've been hearing from the coverage that they're saying, look, the market is going to slow down, so you have more time to save.
It's still predicted to grow, but roughly 2% less than the baseline forecast so if you've been hearing that and you're thinking, great, I'm going to have more options. Do you think about the fact that Sydney has averaged about 5% annual growth over a long period of time, even if it is 2% less, that's still 3% growth, right? and on a million dollar property, that's still 30 grand. Therefore can you save $30,000 in 12 months? I don't know. Maybe if you can, great. But you've still got to factor in growth for that period of time that you're not in the market. A lot of people can't save that amount of money. So you're not gaining anything by waiting per se and by the same token, I think that panic buying is also not ever great. Think about, save as much as you can and make sure your situation is such that you can make that longer term commitment, because if you thinking you're buying and you're going to have to sell within five to seven years, like I said before, you don't want to end up losing money after, all your costs, etc, and the cost of moving somewhere else as well.
I suggest getting a proper broker to map it out for you. Spend your weekends getting genuinely familiar with the suburbs you're targeting and by the time you're ready to act, you know what a good property looks like. I wouldn't wait until next year. I would still keep the wheels in motion as such because the property market is still going to keep moving. Right. All in all that’s what's going on. There's a lot going on but as always, the headlines tell one story and reality tells another.
In the coming weeks, I want to put out short compiled episodes, which is like the 12 month watch list in order to see where this budget is going to be. Between now and the middle of next year, what will actually be decided? What's it going to look like? and sort of the headlines that you can ignore. Keep your eye out for that one and in the meantime, if you want help buying with a framework, my Better Home Buying Online program walks you through it module by module. I really hold your hand through the whole course. We have live sessions together where you can ask me questions. There's downloadables, videos to watch. And the next intake opens later this year.
The link will be in the show notes. I hope you found this episode helpful to sort of cut through the budget noise. Thank you for listening and I'll see you soon.