Negative gearing has long been one of the most discussed (and sometimes controversial) strategies in the Australian real estate market. For many landlords in Sydney and NSW, it’s a tool that affects both cash flow and tax. But what exactly is negative gearing, how commonly is it used today, and what recent policy changes might investors need to know about? In this article, we break it down using the latest data (2025), explain the mechanics, pros & cons, and what it all means for property investors with one or more investment properties.
What Is Negative Gearing?
– Definition: Negative gearing occurs when the costs of holding an investment property (interest on mortgage, maintenance, depreciation, insurance, etc.) exceed the income produced (rent + other income) for that property. The net loss can be deducted against other taxable income (like wages), thereby reducing overall tax payable.
– Key components:
1. Rental income
2. Holding costs (interest + operating costs)
3. Tax deductible ability of net loss
– Versus positive gearing: When rental income exceeds costs, providing positive cashflow. Negative gearing is about accepting short-term loss in hopes of long-term gain (capital growth).
How Widespread Is Negative Gearing in NSW / Sydney (2025 Data)
– In the 2022-23 financial year, about 51% of property investors in Greater Sydney reported negative gearing (i.e. net rental loss) on their properties.
– That translates to nearly 300,000 landlords within the Sydney region reporting losses on their investment properties.
– The total net losses on rental properties in Greater Sydney exceed AUD $3 billion annually.
– Nationally, negative gearing deductions and losses are contributing significantly to foregone tax revenue. For example, in 2023-24, negative gearing reduced personal income tax revenue by about AUD $10.9 billion. The figure for 2024-25 is projected to rise to ~ AUD $12.3 billion.
Recent Policy Proposals & Changes (as of 2025)
– The Australian Greens have proposed phasing out negative gearing and the 50% Capital Gains Tax (CGT) discount for more than one investment property. Under this proposal:
1. Negative gearing would be removed for all investment properties beyond the first one (assuming the first one is held before a certain start date).
2. The CGT discount would similarly be restricted, with cost-base indexation proposed as an alternative for some assets.
– These proposals, if implemented, are forecast to increase fiscal revenue over the budget forward estimates. For example, the proposal’s impact on negative gearing + CGT changes is estimated to increase fiscal and underlying cash balances by AUD ~$5.8 billion over the 2025-26 period and following years.
Pros & Cons: What Investors Should Weigh
Pros
– Tax benefit: Ability to offset losses against other income, which can help high-income earners reduce taxable income.
– Capital growth potential: Many investors accept short-term losses with the expectation that property prices will rise over time.
– Depreciation & deductions: Maintenance and depreciation add to deductible losses, improving tax outcomes.
– Leverage advantage: The ability to use borrowed money to purchase property, magnifying potential long-term gains.
– Wealth building tool: For some, negative gearing has been a pathway to long-term wealth through property portfolios.
Cons / Risks
– Cashflow stress: Ongoing out-of-pocket costs can put financial strain on households until (or unless) the property becomes positively geared.
– Interest rate risk: Rising rates increase borrowing costs, deepening losses.
– Market risk: If capital growth slows or stagnates, the expected gains may not eventuate.
– Policy and tax changes: Government reforms, such as limiting negative gearing or changing capital gains tax, could reduce benefits.
– Opportunity cost: Money tied up in covering losses could potentially earn more in other investments or in paying down a home loan.
What Does This Mean for Sydney / NSW Property Investors?
– Many investors are finding that properties in Greater Sydney are negatively geared for longer periods than before. According to SQM Research, it used to take ~5 years for rental income to exceed holding costs for many properties; now it can take over 10 years, especially in suburbs with high property purchase prices and lower rental yields.
– Areas with particularly high rates of negative gearing claims include parts of Western Sydney, like suburbs in the Hills District (Rouse Hill, Kellyville), Baulkham Hills, The Ponds, Schofields, Tallawong, etc.
– Rising interest rates, increased expense pressures (maintenance, insurance, regulatory compliance) are making negative gearing more costly in the near term for many landlords.
How to Decide If Negative Gearing Is Right for YOU
Here are practical steps and questions to help you evaluate whether negative gearing aligns with your financial situation:
1. Understand your cashflow
– Calculate all holding costs: mortgage interest, rates, insurance, maintenance, vacancy periods.
– Compare these with expected rental income over different scenarios (e.g. worst case, average, best case).
2. Estimate capital growth realistically
– Use recent suburb-level growth data. High growth suburbs may justify longer negative gearing periods.
– Be cautious: past growth is not guaranteed to continue at same rate.
3. Check your tax bracket
– Negative gearing benefits are greater if you have higher marginal income. If you’re in lower income brackets, the tax offset may not offset risks/cash losses.
4. Have financial buffer / risk tolerance
– Interest rate rises, unexpected repairs, vacancies can all deepen losses.
– Ensure you have liquidity or other income to cover shortfalls over extended periods.
5. Be aware of policy risks
– Legislative changes (as proposed in 2025) could limit the benefits, especially for investors with more than one property.
– Consult with a tax advisor/accountant to understand how potential changes might affect your investments.
FAQs
– Can I negative gear a property even if I only own one investment property?
Yes. Currently, negative gearing is allowed on any number of investment properties, subject to your eligibility under income tax law. However, proposed reforms may limit these benefits for second (or more) investment properties.
– Does negative gearing always improve returns?
Not necessarily. If capital growth is weak, or costs rise more than expected (maintenance, interest), your total return (after tax and expenses) could be lower than alternative investments.
– Will negative gearing changes increase rent for tenants?
Possibly. Some landlords may pass on increased costs (mortgage, compliance, tax) to tenants, but the dynamic is complex. Supply of rental properties, vacancy rates, and market demand will also influence. Analysts suggest changes could shift investor behavior.
Conclusion
Negative gearing is a powerful tool in the Australian property investment landscape — one that can lead to tax benefits, wealth accumulation, and capital growth if used carefully. But it’s not risk-free. For many in Sydney and NSW, negative gearing means long periods of out-of-pocket costs, exposure to rising interest rates, and potential vulnerability to policy changes.
If you’re considering investing, negative gearing might make sense if you have a long investment timeline, strong cash reserves, and realistic growth expectations. Otherwise, it may be safer to focus on more cashflow-positive opportunities or diversify your strategy.
What Investors Should Do Next
– Consult with a tax professional to understand how your individual situation is affected by current laws and any proposed changes.
– Run your numbers: use conservative estimates of rent, vacancy, costs to model worst, average, best-case scenarios.
– Monitor policy developments: be aware of proposals around phasing out negative gearing for second properties and CGT changes.
