CGT discount reform could trigger investor sell-off

Scaling back the CGT discount from 50 per cent could prompt a wave of investor sell-offs, tighten already strained rental conditions, and reduce incentives for further development, brokers and investment groups have cautioned.

The Labor government is reportedly considering changing the discount, which has been in place since the 1990s, and reduces the taxable portion of a capital gain by 50 per cent for assets held for longer than a year.

According to the Parliamentary Budget Office, the CGT discount will cost the budget $247 billion in foregone revenue over the next 10 years. A Senate select committee is currently investigating the discount, with findings due to be published on 17 March.

Speaking to Broker Daily, Costa Arvanitopoulos, broker for property investment brokerage Finni, said that reducing the discount may cause unintended consequences.

“In the short term, if such a change were announced with a future start date, we would likely see a spike in listings,” he said.

“Sellers who were already considering a sale would be incentivised to bring it forward, as selling three to four months earlier could mean saving around 17 per cent in tax.

“Over the medium to longer term, however, I actually see the opposite effect. A reduced CGT discount means sellers retain less profit per transaction, which increases the time required for a sale to make financial sense.

“For developers, higher effective tax reduces margins, making it harder for projects to stack up financially. That ultimately results in fewer sites being purchased and fewer dwellings being delivered.”

Rental market pressures

The Property Investment Professionals of Australia (PIPA) warned that changes to CGT could push one in three investors to sell their properties, putting further pressure on the rental market.

“Our 2025 survey found that 16.7 per cent of investors had sold at least one property in the year to August – up from 14.1 per cent the year before and 12.1 per cent in 2023,” said PIPA chair Cate Bakos.

“Of those who sold, 19 per cent already did so because they fear tax changes, and another 35 per cent are telling us they will walk if CGT reforms proceed, which is an extraordinary red flag for policymakers.”

Bakos said that any policy that would accelerate investor exit would trigger immediate and severe consequences for renters.

“Every investor who sells to an owner-occupier removes a rental home from the system and tenants are the ones who suffer the consequences,” she said.

SQM Research’s latest data showed that national vacancy rates remained critically low at 1.4 per cent, with Perth, Adelaide, and Hobart at emergency levels, while Sydney and Melbourne continue to track well below long-term averages.

Similarly, listing numbers remain down by 11 per cent compared to January last year, underscoring the extent of structural supply tightness across markets nationwide.

“When vacancy rates are this tight, removing investors from the market is economically reckless,” she said.

The elephant in the room

Brokers agreed that reducing the discount may increase government revenue, but it would do little to address the root causes of Australia’s housing supply shortage.

“At its core, the fundamentals driving house prices are not addressed by reducing the CGT discount,” Arvanitopoulos said.

“Australia simply isn’t building enough homes for its current and projected population. We are already well behind the government’s target of delivering over 1 million homes by 2030, and while planning reforms have improved, state-based red tape continues to slow development approvals and construction starts.

“Until supply constraints are meaningfully addressed through faster approvals, better planning policy, and greater incentives to build, changes to CGT alone are unlikely to improve affordability in any meaningful way.”

Speaking to Broker Daily, Chris Dodson, director and principal of Plus Mortgages, said there needs to be a “balanced approach” to boosting supply.

“I support initiatives and conversations that help first home buyers enter the market, and we need a balanced approach to get this right,” he said.

“I work with many first home buyers and investors, and the needs I see are simple, consistent, and something I strongly advocate for.

“The real elephant in the room, however, is supply. Australia simply does not have enough housing, and this shortage continues to push prices higher. Encouraging investment in new housing is essential, as the public sector cannot solve the supply problem on its own.

“Regardless of whether a property is purchased by an investor or an owner-occupier, the number of people needing housing remains the same.

“Penalising investors fails to address the supply shortage and instead increases the cost of delivering new housing, ultimately reducing overall supply.”

Broker Daily recently reported on further commentary from the broking industry and the NSW government on the CGT discount.

What do you think should happen to the CGT discount? Let us know in the comments below!

[Related: WA brokers warn of limitations of Help to Buy scheme]