Negative gearing occurs when the costs of owning an investment property – including mortgage interest, property management fees, and rates – exceed the rental income it generates, resulting in a financial loss. This loss can then be offset against other income, such as salary, reducing your overall taxable income.
As of December 2025, negative gearing remains a common strategy for property investors in Melbourne, particularly in the Eastern Suburbs where property values are generally higher. Many investors favour this approach, anticipating capital growth will outweigh the initial financial losses. Currently in Melbourne, the interest component of a mortgage is a significant factor, and with interest rates as they are, many properties are operating at a negative cash flow. It’s important to realise that while negative gearing can provide tax benefits, it doesn’t guarantee a profit. The potential for capital gain is key. Fletchers’ experience across generations shows that properties in sought-after school zones like Balwyn and Blackburn consistently demonstrate strong long-term capital growth. In 2026, we anticipate continued demand for family homes in these areas, potentially offsetting any negative cash flow. The tax implications are individual, and professional financial advice is always recommended. Announced changes in 2027 regarding capital gains tax may influence strategies.
Essentially, negative gearing is a tax strategy based on the expectation of future capital appreciation, and is a common consideration for property investors in Victoria.