Canberra's rental yield hotspots offer alternatives if CGT discount is slashed
If capital gains tax concessions are to be reduced, property investors may need to rethink the traditional growth-first strategy, with rental yield and cash flow resilience taking on greater importance in portfolio decisions.
For decades, property investment in Australia has been driven by two core income engines: rent and capital growth. While both have always mattered, the tax system has historically reinforced the importance of long-term appreciation.
The current capital gains tax framework allows investors to receive a 50 per cent CGT discount on assets held longer than 12 months, significantly improving after-tax returns on growth.
But if those concessions were reduced, the balance of the investment equation could begin to shift.
For many investors, the question may become: does rental yield move from supporting actor to the leading role?
A real estate strategy built on growth
Historically, many Australian property investors have been comfortable accepting relatively low rental yields in exchange for anticipated capital appreciation.
In strong growth markets, that strategy has often been rewarded. The CGT discount has amplified those returns by reducing the tax payable when gains are realised.
If the discount was reduced, the after-tax benefit of capital growth would decline. Investors may therefore place greater weight on income performance when evaluating property investments.
This does not eliminate the role of growth, but it may rebalance how investors assess risk, cash flow and holding costs.
Why rental yields may gain attention
If capital gains become less tax-efficient, stronger rental income could become more valuable in overall portfolio performance.
Higher-yielding properties often overlooked during growth-driven cycles may attract increased investor interest, particularly where income can offset borrowing costs and reduce reliance on price appreciation.
Investors may therefore begin prioritising:
- stronger gross rental yields
- tight vacancy rates and tenant demand
- lower holding costs and sustainable cash flow
- assets that appeal to both tenants and future buyers.
In this context, the ACT property market provides an interesting case study.
Canberra property’s income fundamentals
Compared with several other capital cities, Canberra already demonstrates relatively strong rental market fundamentals.
Median house rents recently rose to around $700 per week, while unit rents increased to a record $580 per week, reflecting consistent tenant demand across the territory.
At the same time, rental availability remains tight. The ACT vacancy rate declined to 1.1 per cent in January, the lowest January level since 2022.
Several districts show even tighter conditions:
- Tuggeranong – 0.4 per cent vacancy rate
- Belconnen – 0.7 per cent vacancy rate
- Gungahlin – 0.8 per cent vacancy rate.
These conditions reflect the territory’s stable employment base, significant public sector workforce and strong tertiary education sector, all of which contribute to consistent rental demand.
For investors prioritising income stability, these fundamentals are important.
Entry price matters too
Another factor influencing investor behaviour is the widening price gap between houses and units.
Canberra’s median house price recently reached approximately $1.14 million, while the median unit price sits around $611,000.
That affordability gap often pushes investors toward apartments and townhouses, where rental yields tend to be stronger and entry prices lower.
Examples include:
- Belconnen units – around $466,000 median price
- Gungahlin units – about $452,500 median price
- Phillip units – around $551,500 median price.
These precincts combine relatively accessible entry prices with strong rental demand driven by employment hubs, universities and transport connections.
For investors adjusting to potentially lower CGT concessions, such characteristics may become increasingly attractive.
Capital growth still matters
Even if CGT concessions were reduced, capital growth would remain a critical component of property investment.
Population growth, infrastructure investment, housing supply constraints and employment fundamentals will continue to shape property values over time.
Experienced investors are therefore unlikely to abandon growth strategies entirely. Instead, many may seek assets that balance income resilience with long-term demand fundamentals.
In Canberra, suburbs such as Denman Prospect, Franklin and Narrabundah illustrate this dynamic. They are locations that combine strong owner-occupier demand with historically solid capital growth.
A shift in investment thinking?
Tax policy rarely determines investment outcomes on its own, but it can influence how investors weigh risk and return.
If capital gains tax concessions were reduced, some investors may place greater emphasis on properties that generate stronger cash flow while still offering long-term resale appeal.
Ultimately, every investment property returns to the market.
And when that happens, buyer demand, not tax settings, will determine value.
If CGT concessions were reduced, investors may wish to ask:
- How reliant is my strategy on capital growth?
- Would stronger rental income improve portfolio resilience?
- Does the property appeal to both tenants and future owner-occupiers?
- Is the suburb supported by employment hubs, education or infrastructure?
Tax policy can influence incentives but disciplined investors will continue to balance income, growth and liquidity when building long-term property portfolios.
