Is Cash Flow the New Priority?

Positive gearing remains rare, but tax reform is changing the investment equation, and for investors, the income a property generates is becoming much harder to ignore.

Australian residential property has traditionally been a capital-growth story. Many investors accepted an annual cash loss because negative gearing softened the holding cost while they waited for values to rise. That model is becoming less straightforward.

Positive cash flow remains rare

Recent Cotality analysis shows just how difficult positive gearing remains. Assuming a 20% deposit, 6.34% investor mortgage rate and typical holding costs, only 0.8% of Australian suburbs, just 38 nationally, were estimated to produce positive cash flow. Almost 70% were in regional Western Australia, with many concentrated in mining markets.

At the same time, the income side of residential property is improving. Cotality’s August Housing Chart Pack shows annual rental growth of 5.9%, while the national gross rental yield has risen to 3.7%.

Why cash flow matters even more now

From 1 July 2027, investors who acquired established residential property after 12 May 2026 will no longer be able to deduct rental losses against salary and other non-residential income. Those losses are not lost. They can be carried forward and used against future residential property income, including capital gains. But the immediate tax benefit of funding a negatively geared property disappears.

Capital gains tax is changing too. For assets subject to the new regime, the 50% CGT discount will be replaced by inflation-based treatment and a minimum 30% tax rate on capital gains accruing from 1 July 2027. Depending on an investor’s circumstances, this can make the tax treatment of future capital growth less concessional.

So what can investors do?

Improve the yield. Higher-yielding units, selected regional markets and other income-focused assets can reduce the cash-flow burden, although higher yields can come with different risks.

Reduce the interest bill. Larger deposits, lower leverage and strategically using offset accounts can materially improve an investment’s cash position.

Think at portfolio level. Losses on affected residential property can still be offset against income from other residential investments, increasing the value of holding stronger income-producing assets alongside lower-yielding properties.

Look beyond conventional residential property. Specialist Disability Accommodation (SDA), for example, offers a differentiated income profile, with participant funding supported through the NDIS pricing framework. For investors, that can translate into materially stronger rental income than conventional residential property, with some SDA investments capable of generating double-digit gross yields, depending on the dwelling type, location, pricing category and occupancy.

As tax concessions for established property narrow, the investment equation is changing. Capital growth will always matter, but investors can no longer afford to overlook the income their property generates along the way. In this new environment, strong yield, sustainable cash flow and smarter asset selection won’t just improve returns. They may increasingly separate the best-performing portfolios from the rest.