The old way of buying property may no longer work

For generations of Australian property investors, the formula was remarkably simple.

Buy a property, borrow against it and rent it out. Use negative gearing to help manage the holding costs. Buy another one when borrowing capacity allows.

And for more savvy or ambitious investors, just repeat.

That strategy has built plenty of portfolios. But the property investment landscape is changing quickly and the next generation of investors may not be able to rely on exactly the same playbook.

The question is no longer simply which property should I buy? Increasingly, it may be how should I own it?

That is one of the less-discussed consequences of the tax changes now being introduced.

From July 2027, negative gearing on residential property will be restricted to new builds, while established properties purchased after the May 2026 Budget announcement will have limits on using rental losses against non-residential income such as wages. The Government is also replacing the 50 per cent capital gains tax discount with an inflation-based approach, with a minimum 30 per cent tax rate on real capital gains.

For investors, that means the old assumption that every property can simply be added to the portfolio in the same way deserves another look.

Steve Douglas, Executive Chairman of SMATS Group and a long-time property strategist, believes the changes could encourage investors to think differently about ownership.

“As an investor, you know, the changes do mean more tax for everybody,” Mr Douglas told API Magazine.

His point is not that everyone should rush out and establish a company or trust.

In fact, he makes the opposite point for anyone who might eventually want to live in the property.

“If there is any slim chance you would live in it, do not buy in a company. Do not buy in a trust. You still want your personal name.”

But for investors buying purely for investment purposes, he believes alternative ownership structures deserve more attention.

The property decision is becoming a structure decision

This is where property investing could become considerably more sophisticated.

The tax reforms do not simply change the amount of tax an investor might eventually pay. They change the relative attractiveness of different types of property and investment strategies.

Existing properties bought after 12 May 2026 will still be able to generate deductions against residential property income, including capital gains, but excess losses can no longer be deducted against unrelated income such as salary. New builds retain access to negative gearing against broader income.

That distinction matters.

It means an investor considering the next acquisition needs to think about the property, the expected income, the growth strategy, the financing and the ownership structure as part of the same decision.

It’s a very different mindset from simply buying the next house because the numbers appear to stack up.

The group investment question

Mr Douglas believes another change could become increasingly important: investors pooling their resources.

“What you are being encouraged to do in this modern age is instead of buying a property yourself, start looking at whether you want to buy with a group of people,” he said.

That does not necessarily mean four friends putting their names on a mortgage together.

There are more sophisticated collective investment structures that allow investors to pool capital and gain exposure to residential property without each person having to acquire an entire property individually.

The attraction is obvious in a market where deposits are large, borrowing capacity is under pressure and quality property can require a substantial amount of capital.

Rather than every investor attempting to build a portfolio entirely through individual ownership, a broader strategy can include pooled or managed property exposure alongside directly owned assets.

SMATS, for example, describes its residential property investment structure as a way for investors to participate collectively in residential property rather than each having to purchase an entire property themselves.

The concept is bigger than any individual product, however. It reflects a fundamental change in the way investors can think about building property exposure.

Funds are not a tax loophole

This is where investors need to be careful.

A company, trust or pooled investment structure should not be viewed as a way around the new tax rules.

The Government’s negative gearing reforms apply to residential property held by individuals, partnerships, companies and most trusts, while certain widely held trusts and superannuation funds are treated differently.

The same applies to the broader changes to capital gains tax.

So the opportunity is not simply to find a structure that preserves the old tax advantages.

It is to consider whether the investment strategy itself still makes sense under the new rules.

That could mean direct ownership remains the right choice for one investor. For another, a company may warrant consideration for an investment that will never become a family home.

For another, pooling capital with other investors may provide a way to gain residential property exposure without taking on the financial commitment of purchasing an entire asset.

The right answer will depend on the investor’s circumstances, tax position, objectives and advice.

The two-property ceiling

There is another reason the traditional model may come under pressure.

Mr Douglas said that while Australia has millions of property investors, most stop at a relatively small number of properties (usually one).

He argues that the combination of high property prices, financing costs and increasingly complex tax settings could make the old “buy another house” strategy harder to repeat indefinitely.

That raises a broader question for investors who have already built one or two properties.

If the next property requires substantially more capital, produces a relatively modest yield and offers less favourable tax treatment, is simply buying another individual property necessarily the only way to expand the portfolio?

The new property playbook

None of this means direct property ownership is finished, far from it.

But the days when an investor could treat ownership structure as an administrative detail are arguably becoming less relevant.

The tax settings are changing and financing is more constrained, while property values are high relative to incomes. Construction costs also remain elevated and investors are increasingly being asked to consider whether established property or new construction fits their strategy.

Mr Douglas’ broader message is that investors should respond to the changing environment rather than simply waiting for it to return to the way it was.

“The market being more expensive, more difficult, is probably encouraging group activity,” he said.

That may ultimately be one of the more important shifts to emerge from the current property debate.

The next generation of successful property investors may not necessarily own more properties in the traditional sense; they may just own property differently.