Landlord shift from CGT changes could usher in the rise of the 'never sell' investor
Much of the debate around capital gains tax (CGT) reform has centred on prices. The belief is that if you reduce the discount, property price growth will slow, and in turn, affordability improves.
But there is a behavioural response that is being largely overlooked. If the CGT discount is reduced or removed, Australia may see the rise of the “never-sell” investment strategy.
Under the current system, investors receive a 50 per cent discount on capital gains for assets held longer than 12 months. The incentive is obvious. Investors commit capital for the long term, and in return receive favourable tax treatment when they eventually exit.
If that incentive changes, investor behaviour will change with it.
Why would landlords at all?
For many investors, selling is already the least tax-efficient part of the property lifecycle. A reduced discount would amplify that effect. The larger the unrealised gain, the greater the tax attached to exiting the asset. Rather than triggering capital gains events, many investors are likely to hold indefinitely. Equity can be accessed through refinancing and income can grow through rising rents.
Intergenerational transfer strategies are increasingly common. In practical terms, portfolios shift toward a strategy of buy, leverage and hold. Ironically, a policy designed to reduce investor influence in the housing market could have the opposite effect on liquidity. If fewer investors are willing to sell, turnover falls. Lower turnover means fewer properties coming to market. And when supply is constrained, prices tend to remain supported.
Investors become more selective
If CGT reform reduces the upside of growth-driven strategies, investors will become more disciplined at entry. Instead of buying broadly for long-term capital appreciation, many will prioritise assets that generate strong income from day one or offer clear opportunities to manufacture value. Properties that allow investors to actively increase rental yield are likely to attract stronger demand.
This includes houses capable of accommodating secondary dwellings, dual occupancies or small redevelopment projects. Across several states, planning rules have gradually evolved to allow granny flats and secondary dwellings as a way to increase housing density. Investors seeking stronger cash flow may increasingly pursue these strategies, particularly if rental markets continue tightening.
If fewer investors enter the market while rental demand remains strong, rents will inevitably rise. Rising rents shift the investment equation back toward yield rather than capital growth. In that environment, passively holding property for long-term appreciation becomes less attractive than actively improving income.
A shift in structures
When tax settings change, investor behaviour is highly likely to change with it. Accountants, advisers and financial planners are likely to see an increase in conversations around ownership structures and long-term tax planning. Trusts, companies and self-managed superannuation funds may receive increased attention as investors reassess how they hold assets.
The objective will be to reduce personal tax exposure and manage capital gains more strategically over time. Direct individual ownership in your personal name has historically been the most common structure for small-scale property investors. If CGT concessions are reduced, that approach may lose its appeal.
Company structures, while currently ineligible for the CGT discount, offer certainty around corporate tax rates and long-term planning flexibility. For some investors, that trade-off may become increasingly attractive. Tax reform by itself doesn’t eliminate incentives, it simply redirects them.
Commercial property's renewed appeal
Another unintended consequence of CGT reform could be a gradual shift toward commercial property. If residential investing becomes less attractive from a tax perspective, capital may begin flowing toward asset classes where income rather than capital gains drives investment decisions. Commercial property is typically assessed differently, where investors focus on rental yield, tenant quality, lease duration and capitalisation rates.
If CGT becomes less favourable, the relative importance of income increases. In that environment, commercial assets offering stable rental income could attract stronger investor demand. Increased capital flows into those markets would likely place downward pressure on cap rates, particularly in sectors that offer defensive income profiles. The result may not be a withdrawal of investor capital from property altogether, but rather a redistribution across different property sectors.
The issue of reform
The central issue of CGT reform is that policies designed to weaken investor activity may instead turn investors into long-term holders. We may see lower transaction volumes, more sophisticated ownership structures and a stronger focus on income-producing assets.
The small, passive investor purchasing a single negatively geared property in the hope of future price appreciation may go away entirely. Housing markets are adaptive. When selling becomes expensive, capital does not disappear. It finds other options.
Reducing Australia's capital gains tax discount may not lower property prices as indented, but instead could encourage investors to hold properties longer, reduce housing turnover, and shift focus toward higher yiled or commercial investments.
