How Should Investment Property Owners Decide Whether to Sell or Hold Amid Changes in Interest Rates, Inflation, Migration and Tax Policy?
Property & Tax Update
Recently, we have received enquiries from a number of investment property owners asking whether, given the current market conditions, they should continue to hold their investment property or consider selling.
This question has become particularly relevant in the current environment.
Interest rates, inflation, energy prices, migration patterns and tax policies have all changed in recent years. For investors with high levels of debt, particularly those using significant leverage to invest in property, the increased cost of holding an investment property can place considerable pressure on cash flow.
As a result, some investors may be considering selling their properties sooner than originally planned in order to reduce interest costs and limit future uncertainty.
However, before making such a decision, investors should look beyond short-term market sentiment and carefully assess their own financial position.
Why Are Investors Under Pressure?
Interest rates have increased
On 29 September 2026, the Reserve Bank of Australia (RBA) increased the cash rate target by 0.25 percentage points to 4.60 per cent.
Higher interest rates mean that many property investors are facing higher loan interest expenses and increased holding costs.
For highly leveraged investors, even a relatively small increase in interest rates can have a significant effect on monthly cash flow.
Inflation and other costs remain important
The latest available monthly Consumer Price Index (CPI) data showed annual inflation of 3.5 per cent in the 12 months to July 2026.
At the same time, higher energy prices and other cost pressures can affect household and business expenses.
For property investors, this can increase the cost of maintaining a property, while tenants may also face greater pressure on their own household budgets.
Migration policy is also changing
Recent changes to Australia's migration policy are being accompanied by a significant decline in temporary migrant numbers.
As population growth and migration are important sources of housing demand, a significant reduction in temporary residents may reduce rental demand and affect housing demand in some areas, particularly those with a high concentration of international students and temporary workers.
Investors should therefore consider how these changes may affect the particular location and type of property they own.
Tax policy is also changing
Tax policy is another factor that property investors need to consider.
From 1 July 2027, negative gearing for residential property will be limited to new builds. Properties acquired before 7:30 pm AEST on 12 May 2026 will be grandfathered under the existing arrangements.
Changes to the capital gains tax regime are also proposed from 1 July 2027, including replacing the current 50 per cent CGT discount with an inflation-adjusted approach and introducing a minimum 30 per cent tax rate on capital gains.
These changes mean that investors need to consider not only the market value of their property, but also the potential tax consequences of continuing to hold or selling the property.
There are therefore several factors that investors need to consider carefully.
However, these factors do not automatically mean that every investment property owner should sell.
Property Investment Is Different from Investing in Shares
Investors should first recognise that residential property and shares have different investment characteristics.
Share prices can move significantly over relatively short periods. Residential property generally has a longer investment horizon and is influenced by factors such as land supply, population growth, employment, infrastructure, household income, housing demand and local economic conditions.
For an investor who originally purchased a property with a five-, ten- or even longer-term investment horizon, short-term market movements do not necessarily mean that the original long-term investment rationale has fundamentally changed.
This does not mean that property prices will always increase, or that investors should ignore market risks.
The more important question is:
Does the investor have sufficient financial capacity to continue holding the property while the market is under pressure?
Don't Start by Asking "Will Property Prices Fall?" — Start with a Cash Flow Stress Test
For highly leveraged investors, this may be one of the most important steps to take.
Rather than trying to predict whether property prices will rise or fall over the next one or two years, investors should first assess whether their cash flow can withstand a period of financial pressure.
For example, an investor could consider:
- If interest rates increase further, can the loan repayments still be comfortably met?
- If rental income does not increase for some time, can the property still be maintained?
- If there are significant repairs, insurance costs or other unexpected expenses, is there sufficient cash available?
- If the property is vacant for several months, can the investor continue to meet loan repayments and other holding costs?
- If household or business income falls, can the property still be retained?
- Is there sufficient financial capacity to hold the property over the next three to five years?
The purpose of a stress test is not to predict that these events will necessarily occur.
Its purpose is to answer a more important question:
If market conditions remain difficult, do I still have the financial capacity to hold this property safely?
If a reasonable stress test shows that the investor can continue to meet interest, property expenses and other holding costs, there may be no need to make a rushed decision based solely on short-term market sentiment.
Transaction Costs Also Need to Be Considered
Selling an investment property is not a cost-free decision.
The sale may involve real estate agent fees, legal and conveyancing costs, loan-related costs and potentially capital gains tax.
If the investor later purchases another property, additional transaction costs such as stamp duty and legal costs may also arise.
As a result, selling an investment property during a period of market uncertainty and then re-entering the property market a few years later can have a significant impact on the overall investment return.
This is why investors should calculate the full transaction costs and tax consequences before deciding to sell.
The relevant comparison is not simply:
"What is the property worth today compared with what I paid for it?"
The more meaningful question is:
"After considering tax, transaction costs, debt and future investment requirements, how would selling this property affect my overall financial position?"
When Should Selling Be Seriously Considered?
Short-term market pressure does not necessarily mean that an investor needs to sell.
However, if a financial assessment shows that the property can no longer be held safely, selling should be considered as one of the available options.
1. Cash flow is no longer sustainable
If the investor is consistently unable to meet loan repayments and property holding costs at current interest rates and rental income levels, and there are insufficient cash reserves to cover the shortfall, continuing to hold the property may increase financial risk.
2. Leverage is too high
If the level of debt is very high relative to the value of the property, the investor may have limited financial flexibility if property values fall or borrowing costs increase further.
The investor should therefore consider the effect of property price movements on their overall financial position, rather than looking at the property in isolation.
3. The property no longer fits the original investment objectives
An investor may have originally purchased a property for long-term capital growth, rental income or a combination of both.
Over time, circumstances can change.
For example, the property's rental return, location, maintenance costs or future prospects may no longer align with the investor's objectives.
In such circumstances, selling the property or changing the investment portfolio may be worth considering.
4. The investor needs to release capital
Selling a property may also be considered where doing so would materially improve the investor's overall balance sheet, reduce debt, improve liquidity or provide funds for other financial objectives.
In this situation, the decision is not necessarily about whether property is a good or bad investment.
It may simply be about whether the current asset and debt structure remains appropriate for the investor's circumstances.
SELLING OR HOLDING ARE NOT THE ONLY TWO OPTIONS
In practice, investors should also consider alternatives between simply selling and continuing to hold the property under the existing arrangements.
For example, they may consider:
- negotiating a different interest rate or loan structure with their lender;
- comparing alternative loan products;
- making additional repayments or reducing other higher-cost debt;
- reviewing rental income and the property's leasing arrangements;
- reviewing property management, insurance and other ongoing costs;
- using available cash reserves to reduce expensive debt;
- selling one asset rather than selling the entire investment property portfolio; or
- reviewing the overall level of leverage across the investment portfolio.
Sometimes the real question is not:
"Should I sell this property?"
It is:
"Is my current financing structure and overall asset allocation still appropriate for my circumstances?"
Australia's Property Market Needs to Be Considered on Its Own Terms
Some investors compare Australia's current property market with the property market in China in recent years.
However, the two markets have significant differences in economic structure, population trends, land supply, housing policy and financial conditions. For this reason, the experience of one market cannot simply be used to predict the future of the other.
The long-term performance of the Australian property market needs to be considered in the context of local population growth, housing supply and demand, employment, economic growth, interest rates and government policy.
The Most Important Question Is Not "Will the Market Fall?" — It Is "Can I Hold Safely?"
Investment property owners currently face several factors that deserve careful consideration:
Higher interest rates, inflationary pressures, higher energy costs, changes in migration patterns and changes to tax policy.
These factors may increase holding costs for some investors and may also affect housing demand and property market conditions.
However, a challenging market does not automatically mean that every investor should sell.
For an investor with a sound financial position, sufficient cash flow and a long investment horizon, short-term market volatility may simply be one stage of a longer investment cycle.
On the other hand, an investor who is highly leveraged and whose cash flow cannot comfortably withstand further increases in interest rates, lower rental income or unexpected expenses should not ignore the current liquidity and debt risks, even if the long-term property market may eventually recover.
Before deciding whether to sell, investors should first consider three key questions:
First, can my cash flow withstand further financial pressure?
Second, do I have sufficient cash reserves to manage uncertainty over the next three to five years?
Third, after considering tax and all transaction costs, would selling the property actually improve my overall financial position?
If, after considering these factors, an investor remains financially capable of holding the property, there may be no need to make a rushed decision based solely on short-term market sentiment.
Property investment is generally a long-term process.
During periods of uncertainty, disciplined cash flow management, appropriate leverage and clear long-term investment objectives may be more useful than trying to predict whether property prices will rise or fall over the next year.
Ace Solutions Accounting & Taxation
Disclaimer: This article provides general information only and does not constitute investment, accounting, taxation, financial or legal advice for any individual or business. Property investment involves a range of risks, including market, interest rate, taxation, financing and liquidity risks. Investors should obtain appropriate professional advice based on their individual circumstances before making investment or property sale decisions.