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This CGT Change Will Crash Australian Property Market in 2026 | Property Experts · The Follio Property Podcast

• 0:01
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• 0:56
  Will you guarantee that you won't touch negative gearing? Well, we have no plans to change negative gearing. What we're concerned about is supply. Problem is, you've said this before and then changed.
• 1:07
  If we get something like this, we're going to have a shortage of supply. We're going to have higher rents. It misses and it misses badly. Those that can't afford anywhere to rent, they're the ones that are going to suffer here. If you stuff the economy, you stuff everything. It's as simple as that. This could be peak Australia, peak living standards. If we don't fix a lot of those settings, we're in a national housing shortage, right?
• 1:27
  Since the CGT exemption came in, property prices soared. What's the actual truth behind that? There's an opportunity there for capital gains tax and negative gearing reforms. And our intelligence has it strongly that they're going to move on that. UK government has completely butchered property market and rents are skyrocketing over there. And that's diabolical. And if we announced a budget night that it's effective immediately, what the hell is going to happen then?
• 1:52
  You're listening to the Folio Property Podcast. I'm Rhys Bettle and I'm here each week with my co-host Lachlan Delahunty. Special day today, Lachlan.
• 2:01
  We have a very esteemed guest with us today. The OG. The OG. I was going to say that. No, no, no. No, no. Over 21 years experience in this space is very rare, especially with the rise of the buyer's agent. Host of probably the most popular property podcast, a podcast that Lachlan actually got me to listen to when I first started working with him. And he does this with all his new employees. Listen to the first 20 episodes and you'll learn the fundamentals of property investment. Thank you.
• 2:30
  And very importantly, chair of the board at Picker as well. So Ben Kingsley, welcome to the Folio Property Podcast. Thanks for having me, Bruce. Thanks, Lachlan. We've got a lot to unpack today, but I thought with someone of Ben's caliber, Lachlan, I thought we'd go through some really big issues or big policies that are potentially going to come out. And
• 2:54
  Let's kick it off with the most common one in the news at the moment is the CGT potential reform that the Labor government's pitching. Ben, you did a YouTube video that I told you off air that I watched from the bigger standards. Talk us through your stance and where you see that going at the moment.
• 3:10
  Yeah, so we're in a situation where the Labor Party has a strong sort of majority in the lower house and also has supply through the Senate. Now, they've tried a couple of times to get reforms into negative gearing and capital gains tax.
• 3:26
  when they're in opposition. And unfortunately, when you talk about raising taxes, and you're trying to win government, that's not necessarily going to land very well. Now they're in government, and they've also got, you know, a political challenge around the excessive spending that they've got. So they've got to raise revenue. So that's the sort of behind the scenes challenge that they've got.
• 3:44
  And then they're looking at, obviously, they've got all their boffins looking at what's the biggest impact going to have in terms of raising taxes and where's that going to turn up in the ballot box. And the reality is that will turn up in the ballot box if it's done poorly for everyone. But the reality is they see that there's an opportunity there for capital gains tax and negative gearing reforms. So let's assume that capital gains tax reform is coming.
• 4:10
  And what we know from the intelligence that we have is it does look like it's going to be a reduction from 50% after 12 months down to 33% and no grandfathering. So that will be something that will surprise several in terms of it because remembering the no grandfathering, they need the revenue now. And we just think that from a settings point of view, that's a poor policy design.
• 4:40
  the association, the not-for-profit association that I'm the chair of, that I volunteer for, we've had a policy position on capital gains tax reform from late 2019 after the last federal election. We just saw the writing on the wall at some point in time, there's going to be this challenge that we'll have and this social narrative that will change. And also the other intelligence that we have, we don't know, again, this is all speculative, is that it'll only be on
• 5:09
  So shares and the like will continue to have. And so those types of big reforms change the game in terms of supply of investment and so forth. So, and we think that it needs to be designed to stop speculation in property. So if you're trying to talk about intergenerational inequality,
• 5:28
  I get it. And you're trying to talk about first-time buyers having an opportunity to get in the market. I completely get it. But what we have seen is sort of, let's say, a new breed or next generation of advisors coming into, predominantly buyers, agents, and property spruikers who are coming into the space and they're advocating for property trading. And when you trade property and you speculate on property, that's different
• 5:52
  than the work you guys do and the long-term views that you hold and the sustainable element of the important social infrastructure that we provide as private rental accommodation providers. So that's where it misses and it misses badly because if we get something like this, we're going to have a shortage of supply.
• 6:10
  We're going to have higher rents because obviously we know through behavioral economics that loss aversion is two times more powerful than a gain. So all of those people who feel like that the government's going to tax them higher will potentially hold on to their properties. And the government will say, well, that will mean that there's going to be a reason. But future supply is going to be really challenged. Is there anything we can learn from, I guess, what happened in New Zealand? Yep.
• 6:33
  The black and white was they got rid of negative gearing, changed the government. So exactly what you're just saying there. They then rent soared. They then brought it back. Is there anything, I don't know what level of research you've done in that, especially from a picker standpoint, but is there anything that we can learn in Australia from that? We are looking at this reform.
• 6:51
  Yeah. So again, Jacinta Ardern, Labor Party, no one left behind sort of policy settings, welfare, middle class, try and manipulate the settings to make house prices more affordable and so forth, but just butchered it, right? Because anytime you put regulations into a market, the free market can't flex its muscle. And so the economy faltered,
• 7:19
  because of too much regulation, too much interference in the market. And that takes out the confidence of the investor. And as part of the settings that you mentioned, they've had to reset those settings because, oh, they get it now. That's how supply comes on. And so I think for anyone who wants to go into politics and into that sort of life,
• 7:39
  You've only got one job and that's run a strong economy. If you don't run a strong economy, you can't provide for the education and the health services and all of those other things we need. And so that's why we are hearing some of our thought leaders in business and commerce basically saying Australia needs to make some radical changes to the way in which we're administering our economy and the regulations that we put in place because this could be peak Australia, like in other words, peak living standards.
• 8:07
  If we don't fix a lot of those settings, negative gearing is the other one in terms of, and what we're seeing in the intelligence around negative gearing is that it'll be capped at two. So you'll only be able to have two concurrent properties that will be negatively geared at any one time. There's not a lot of detail outside of that, but you can understand that that's the sort of policy position that they're thinking about. So they would argue that that's going to help with supply.
• 8:37
  And we understand that that's also not going to be conditional upon existing versus new. So that also means sensible. If you're talking about the lesser evil of the two, that one there probably sits okay for the typical mum and dad investor who only buys one or two.
• 8:59
  But the capital gains tax one's the problem. And that's why we've proposed a different model. And that model is what you can't afford to do is drive supply down. But that's essential if you want to keep rents and house prices down. So rather than just whacking us with 33% after 12 months,
• 9:20
  have a staged policy over five years, whereby we move back up to that 50% concession. Everyone focuses in on indexation and adjusting for inflation, but what they don't factor in is wage averaging. So wage averaging over a long period of time means that if we all start working our careers and move up and get into a higher pay scale, we obviously pay a higher PAYG tax level. And if that is the case, then effectively we're paying higher tax. Whereas if that was wage averaged,
• 9:49
  And that's why they set it at 50%. So it cuts out the spruikers, it cuts out the speculators and the property traders and the flippers. It makes them pay higher tax from day one. So it ticks the box in terms of government revenue and it levels the playing field in terms of making sure that the people who are coming in, there's not going to be all of these traders who are taking all of these older properties off the market for first home buyers to come in. So that's why we think it gets the policy settings right.
• 10:15
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• 10:45
  My biggest concern at the moment, we're in a national housing shortage, right? Yep. And there's been so much done by the government, which I don't agree with, which is just inflated demand. And they've pretty much put their head in the sand in regards to solving the supply solution. By taking out...
• 11:01
  potentially a large portion of the market, because this will have, if you're saying they're not going to grandfather it and bringing it in potentially after the budget, it's going to have an immediate effect on investors. And my biggest concern, and this is what I keep speaking about, if rents rise, and they will significantly, and you take a large portion of the market out of play, which...
• 11:21
  supply accommodation to our most vulnerable and those that need a place to rent. And this is my biggest concern. Those that are fortunate enough that can buy a home, yeah, it's tough and it's the Australian dream, but those that can't afford anywhere to rent, they're the ones that are going to suffer here. And it's going to be on the government to have to...
• 11:40
  I guess, save face when we're seeing other countries, New Zealand, actually remove it and bring it back in. So it's been proved in other countries it doesn't work. What's your thoughts around that? Well, I think, yes, because people engage their first system thinking brain, not their second system thinking brain, which is short thinking versus long-term thinking.
• 11:57
  And so the behavioral initial thinking is exactly that. It's like, well, this is going to cut off the ability for future supply. And then you've got to start thinking about the types of people who rent. And this is where, you know, in terms of, and I always think about economic growth first, but that is the fundamental thing.
• 12:16
  to provide improved living standards and everything. So if you stuff the economy, you stuff everything, right? It's as simple as that. You know, the movement of human capital is critical for the development of towns, cities, regions, the whole thing. What you need to do is provide a balanced market. And what these policies don't do is encourage that new supply, but also ensure that we have adequate existing supply, because it can only be new once. The big narrative that's getting painted, I guess,
• 12:46
  at a barbecue is since the CGT exemption came in, property prices soared. I know you've done a lot of research on this. What's the actual truth behind that? Look, the truth is that if you're thinking about a compounding return, you're looking at a compounding return of around 7.19%
• 13:08
  to 2000, and then post-2000, you're looking at a compounding interest return of around 7.03, I think, are the rough numbers. So it's been roughly the same, but it just looks more impressive on a chart, right? Because obviously that's the power of compound. So the reality is it hasn't necessarily delivered what some commentators are saying out there. The vast majority of supply, over 90% of private rental accommodation is supplied by everyday Australians.
• 13:36
  And that is hundreds of billions of dollars of investment. And I was talking to a colleague of mine on the board, and he was saying something like 85% to 90% of all new construction in residential is actually done by 95% of these mum and dad investors, developers, and builders.
• 13:56
  So, you know, the government spends all of their time talking to property council and all of the sort of big end of town, but the vast majority of the supply is actually being delivered by these tradies and these mum and dads who are finding the funds to turn a single home into three townhouses or whatever that may be as well.
• 14:15
  I just find it fascinating and frustrating that we have policy debate that doesn't go rich into all the nuances which it needs to consider. And then when you do that properly, you get good policy settings. Do you think we'll sit here in 12 months, 18 months, two years, three years time and go, is we're beating the drum on this and we're pretty confident that it wasn't going to solve problems and they're going to create more? Do you think that's going to be the case?
• 14:44
  I think when you also combine it, if the problem is still supply, and that's the number one issue that we need to solve here, if you combine that in concert with higher interest rates, which looks likely we're going to get, it's going to be a debate around whether it's higher interest rates or whether it was policy settings that did it. But the bottom line is we're going to have less supply and rents and property prices
• 15:05
  are most likely going to go up. Any investor who's thinking about investing shouldn't be thinking just in one, two, three-year timeframes. They should be thinking in longer-term timeframes. So, Lachlan, to come back to your point, I think it would be silly of them to issue that policy setting. I think there's no problems in trying to reform capital gains tax.
• 15:26
  But that's why we are pitching PIPAs and PICAs policy in terms of what that story looks like. Because the reality is, if we get the settings right, we won't have to say, I told you so. And that's why we also need to be basically screaming out now before... Because the budget papers are being written...
• 15:44
  in the next month. Penn is going to paper right now on those budget papers, ready for May. Put it out to anyone who's in the government or Treasury or anyone who sets these rules. Talk to us. We're sort of saying, can we organise ourselves? And that is, unfortunately, one of the weaknesses of mum and dad and individual everyday Australian property investors.
• 16:05
  We're not organized. And that's why we set the Picker Association up to try and get everyone as members and be organized. So have a voice. But what about the voice of the actual investor? Because in some cases, the property managers and the property investment advisors, they have an agenda. But the true voice has to come from those owners. And so that's what Picker was set up to try and achieve. It's interesting through your intelligence,
• 16:35
  I know you mentioned there, you know, the rise of the Spruker, and we talk about it on our podcast, like the rise of this buyer's agent.
• 16:42
  But in the general public in Australia, why do you think they're just targeting property on this? Because it's in the top two issues politically, housing affordability and cost of living. So they have their research arms of their political parties. And these are the big political issues of the day. And if we don't address them, because at the end of the day, what do political parties want?
• 17:06
  They want to be in power, right? You know, we're going to, again, we're going to hear this story around, you know, level the playing field and, you know, home buyers are being crowded out. That's their narrative. That's what they'll go with. And the budget will have a framing around intergenerational inequality. And that will, you know, for those voters who are now the biggest cohort, which is the millennials and the Gen Zs, that's who they're going after, right? They want to stay in power. So that's where they'll get the votes.
• 17:32
  Speaking of medium to long-term markets, we're a lot of Perth listeners that when speaking about where we are today in Melbourne, there's a lot of negativity surrounding Melbourne and Victoria in general, right? The conversations we have that come to us is that the government's got no money, they're on their knees, crime rates are through the roof, they tax everything and they're trying to recruit people.
• 17:54
  money through taxing. Tenants have far too many rights, so why would I get investment property? Talk to us about your views on the Victorian market as a whole, specifically Melbourne and potentially the major regionals and some of those things that I've just spoken about.
• 18:08
  Yeah, Lachlan, I mean, I've been very critical of the Melbourne market and very critical of our government down here because, again, they've stuffed the economy. And so that economy needs to be sort of rebooted and we've got some debt associated with that. But I've been on that sort of story for about three to four years and it's showing up in the sentiment surveys and everything like that, that...
• 18:31
  Melbourne and Victoria is anti-investor, anti, you know, sort of, and pro-renter, you know, in that particular sense. And so that has changed that sentiment. But I just can't ignore the differential in terms of affordability and the measures around that. And you'll see, you know, cotality will release, you know, some markets where, you know, owning is obviously cheaper than having a renting, right, and paying a mortgage. So,
• 19:00
  at some point in time, that pendulum has to shift and that sentiment has to move. So I'm not sure it's necessarily immediately in terms of early 2026 when we're recording this, but if I can lift my eyes now and say, I think we're through the worst of it, and there might still be flat for 12 or 8, but if I'm taking a position that my portfolio needs to have quality assets in mega capital cities,
• 19:29
  then it's dumb for me not to think of Melbourne and consider that as part of that option. So part of the, you know, sort of my dialogues at the moment and my narrative at the moment is if I can lift my eyes to three, five, seven, 10, and maybe 15, we'll probably be sitting here and people saying, okay, in the last 15 years, where did Melbourne sit here?
• 19:48
  in terms of it's been the underperformer for probably seven to 10. So, you know, and history tells us that that's how it moves. So Melbourne will most likely over the next 10 to 15 years, probably be in the top two in terms of capital growth performance. So if you put that sort of macro view on and you say to yourself, well,
• 20:07
  would owning a property in our second biggest mega city in Australia be sensible? I think you can make a case for that. And that's sort of the case that I'm starting to make. I'm not saying it's going to be brilliant and it's going to be overnight, but if you think counter cyclical and we've waited out a reasonable period of time, that sentiment will shift and we'll start to see Melbourne performing in a better light.
• 20:29
  And being on the ground here, are you starting to see that sentiment change? We're seeing auction clearance rates improve slightly. We're starting to see some markets, particularly investment-type markets, starting to move is. So obviously, there is a shift broadly. Yeah. I mean, sub $650, it's tough. The investors are in, the buyers, agents are in, and the owner-occupied first-time buyers are in. So that market is definitely performing better than the mid-tier and the top quartile.
• 20:58
  What gives me comfort about the Melbourne market, and I'll talk about regionals in a minute, is it's owner-occupied lead. So when I'm out in the field bidding at auctions and so forth, I'm analysing who's buying downsizes, upsizes, firsties.
• 21:15
  And we're seeing more of that than what we are in terms of maybe investors putting their hands up at the moment. And I've been super critical of the Canberra market in terms of they have literally taxed out the ability to actually invest in that market. And I just can't see the Victorian government being that dumb because let's go back to the big story that I said before.
• 21:36
  Victoria's number one asset, considering that their economy is burdened by this debt level, its number one asset is its population growth. So if we continue to keep bringing people in, we're gonna need jobs for them, right? And so if we get the jobs right,
• 21:52
  then ultimately they'll need housing. And so that will put pressure in terms of that. And the price dormancy that we've seen, where we've scratched out small gains in the last 12 months, and we'll probably scratch out some more gains. But then off the back of that, hopefully we'll see that momentum. In terms of the debt is still my biggest sort of unknown, known unknown. So I'll keep an eye on in terms of what that might look like, in terms of what other ways in which they might be able to do that. But I think they've worked out
• 22:21
  that through the taxing that they've done, that they can't really come any harder at property than they have. And I think that they'll understand once the big build's finished, that they'll have all these tradies and they'll need to put them on work. Well, I think one of the best things that they can put them on is building new housing, building new supply. And so they might offer incentives that might stimulate that because we simply can't afford to keep doing the infrastructure builds that we have been doing.
• 22:49
  at the price we're paying for that infrastructure. So I like Melbourne medium to longer term, and I like to think in decades as part of that. So yeah, if I've got an asset in my portfolio, that's a Melbourne with a bit of land content, I'm feeling comfortable for the long-term outlook.
• 23:05
  What about the rise of the buyer's agent? So Lachlan talks about this quite passionately on our podcast and you're really seeing, especially in these regional plays where markets are getting moved by buyer's agent activity,