Is Negative Gearing Still Worth It in 2025?

Negative gearing has long been a popular property investment strategy in Australia — really, since John Howard made it the two sweetest words property investors had heard (perhaps in addition to “capital gains discount”). But as cost of living rises, property markets shift into top gear, and fresh policy proposals loom, many investors are starting to ask: is negative gearing still worth it?

Let’s break it down.

What is Negative Gearing?

Negative gearing means the income your rental property generates is less than the costs of holding it (think interest on your mortgage, council rates, insurance, maintenance and so on).

The reason it has appeal is the tax benefit. If your property runs at a loss, you’re generally allowed to offset that loss against your other income, which can reduce your overall tax bill. This offset is what makes negative gearing attractive, especially for high-income earners (of which most hold multiple properties).

But this only works if you’re earning enough elsewhere to use the deduction — and if the property grows in value to make up for the shortfall.

Cash Flow Negative vs Negative Gearing

But not every cash flow-negative property is negatively geared (in the tax sense).

A property might be losing money each year, but if you’re not earning enough income to offset those losses, you won’t benefit from the tax deduction. Instead, the losses come directly from your pocket.

That means negative gearing is a tax strategy, not just a financial result. It’s really important for new property investors to realise this.

Applying Negative Gearing

Let’s say you purchase a $1 million investment property with a loan that’s 90 per cent of the property value (likely incurring mortgage insurance, but we’ll forget about that in this example).

• Interest (5% on $900,000): $45,000
• Other holding costs: $10,000
• Rental income: $45,000

This leaves you with a $10,000 annual shortfall. If you’re in the top tax bracket, your offset may bring that down to around $5,000 per year.

Now assume the property increases in value by 5 per cent each year (not compounded). After 10 years, it’s worth $1.5 million: that’s a $500,000 gain for $50,000 in net holding costs. And a 500 per cent return on your $100,000 deposit.

The catch is, you’ve used debt to make it work. If the market moved the other way, the losses would be amplified just as quickly.

Why Are Investors Doubting Negative Gearing?

Property Values Are Still Climbing

Unlike Sydney and Melbourne, where growth has slowed or reversed in places, Perth and regional WA are still seeing upward momentum. Investors who entered two to three years ago are now seeing solid equity gains. Higher equity of course implies lower leverage (thus negative gearing is harder to achieve — if indeed that’s the aim).

Rents Are Up

Particularly in WA, Aussie property continues to experience strong rental demand.

According to REIWA, “Annually, the median house rent price increased 4.6 per cent, while the median unit rent price increased 10.0 per cent.”

With these rents continuing to see, it means it’s easier for property investors to approach cash flow neutral or even positive, depending on their loan structure. It also means a considerably high investment loan to kick negative gearing into… gear. And because of our next point, that mightn’t be the focus of every investor.

But the Cost of Living is Up Too

Even with better affordability than the eastern states, WA households have been feeling the pressure lately. As of early 2025, it takes around 40 per cent of median household income to service a new mortgage in WA. That’s down slightly from late 2024, but still much higher than the long-term average.

This matters because it impacts holding power. The more income eaten up by mortgage repayments, the harder it is to carry a negatively geared property.

And Now, Possible Tax Changes

In July 2025, the ACTU proposed limiting negative gearing and capital gains tax concessions to just one investment property per investor. Under the plan, current rules would remain for five years before transitioning to the new cap — giving investors time to adjust.

Roughly 13.5 per cent of property investors (those with two or more negatively geared properties) would be affected. The majority — including single-property investors — would continue under existing rules.

While not yet government policy, the proposal has support from the Greens and is gaining visibility in national economic discussions. It’s a timely reminder that tax settings can change, and portfolio strategies should factor in potential policy shifts — especially for those with larger holdings.

Is It Still Worth It?

Well, that depends on your income, goals and risk tolerance.

Here are some points to note where it might make sense to own a negatively geared property:

• You’re in a high tax bracket
• You have stable cash flow to cover annual losses
• You believe the property will grow in value over time
• You’re comfortable using leverage to amplify gains

It may not make sense if:

• You’re stretching your budget to make repayments
• You’re buying late in the cycle, where growth may slow
• You rely on tax offsets to make the numbers work
• You’re sensitive to interest rate movements or income disruption

Timing Matters

Negative gearing isn’t necessarily a bad strategy. But it’s not a universally good one either. Like any investment approach, it depends on your personal circumstances and the broader market environment.

In early stages of a growth cycle (which, as of mid-2025, is long in our rearview mirror), negative gearing may be justified. After all, you’re accepting short-term losses in exchange for long-term gains. But as the cycle gets closer to the peak, it becomes riskier to rely on future capital growth to bail you out (because the anticipated price ceiling is lower)).

WA may still have room to grow, but many agree the next few years could look very different from the last two.

Does Negative Gearing Still Work?

Negative gearing can still deliver strong returns in the right conditions, but it’s not without risks. Tax advantages help soften the blow of short-term losses, but they don’t guarantee success. Investors should run the numbers carefully and be honest about whether they can handle the financial pressure involved (re: high debt-to-income ratio).

If in doubt, speak to your financial adviser or accountant before deciding whether negative gearing is wise for your situation. Especially in a fast-paced property market like today’s.

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