Cotality's latest Pain & Gain report, published via Property Update on 17 September 2026, analysed more than 94,000 residential resales in the June quarter and found that while 95.4% still delivered a nominal profit, the share of profitable sales has fallen from a 21-year high and the median gain has retreated from its March 2026 peak. For negatively geared investors relying on capital appreciation to justify holding costs under the RBA's 4.35% cash rate, that retreat is not a footnote — it is the thesis under threat.
Resale Profit Retreat Reframes the Negative Gearing Calculus
Negative gearing functions as a tax strategy only when the annual rental shortfall — the gap between rental income and total holding costs including interest — is offset by capital growth that eventually produces a taxable gain. When that growth slows or reverses, the investor carries real cash losses with no guaranteed tax-advantaged exit. The Cotality data makes this structural tension visible: the June quarter marked the moment the market shifted from record profitability toward measurable softening.
The 95.4% profitable resale rate remains high in historical terms, but the directional move matters more than the absolute level for active investors. A negatively geared property in Dandenong, VIC — where annual growth sits at just 2.3% on a $680,000 median — generates approximately $15,640 in nominal capital gain per year. Against a holding cost environment shaped by the RBA's 4.35% cash rate, that gain may not cover the annual interest shortfall on a 80% LVR loan, let alone depreciation schedules, property management fees, and maintenance. The tax deduction on the shortfall provides partial relief, but it does not eliminate the cash drag.
Contrast that with South Perth, WA, where annual growth reached 13.8% on a $1,450,000 median — producing approximately $200,100 in nominal annual capital gain. At that growth rate, the capital appreciation far outpaces typical holding cost shortfalls, and the negative gearing deduction becomes a genuine tax efficiency tool rather than a survival mechanism. The 2026 downturn has not affected all suburbs equally, and investors who conflate the national 95.4% profit rate with their specific suburb's performance risk misreading their own position.
The 4.35% Cash Rate as the Structural Pressure Point
According to REA Group, Australia's biggest banks lifted interest rates just days ahead of the most recent RBA decision, tightening the financing environment further before any official policy move. That bank-led repricing compounds the pressure on negatively geared investors, because the holding cost side of the equation increases independently of RBA decisions.
At 4.35%, the cash rate has held at its current level long enough to embed higher mortgage costs as a baseline rather than a temporary shock. For an investor with an $850,000 loan — consistent with purchasing at Port Macquarie's median of $850,000 with a 20% deposit — the annual interest cost at a standard variable rate sits well above the rental income most regional properties generate. Port Macquarie's 48 days on market and 46% auction clearance rate suggest the market lacks the buyer depth to support the capital growth that would compensate for that shortfall. Annual growth of 3.5% on an $850,000 median produces approximately $29,750 in nominal gain — a thin buffer against sustained holding costs.
The REA Group's data also flagged that more 5% deposit scheme buyers have fallen into negative equity as prices slide, though overall levels remain low. For negatively geared investors with higher LVRs, this price softening directly erodes the equity buffer that underpins their long-term capital growth assumption.
Cotality's June quarter Pain & Gain report found 95.4% of more than 94,000 residential resales delivered a nominal profit — but the median gain has retreated from the March 2026 peak, marking the first directional shift away from 21-year high profitability levels. For investors in low-growth markets, that retreat reduces the capital appreciation offset that makes negative gearing a viable long-term strategy.
State-by-State Growth Disparity Determines Negative Gearing Viability
The Cotality report's national framing obscures a state-level disparity that directly determines whether negative gearing produces a viable investment outcome or a compounding cash loss. Western Australia continues to post growth rates that dwarf every other major market: Nedlands recorded 15% annual growth on a $2,200,000 median, while Mandurah — at the accessible end of the WA market — delivered 10.5% growth on a $550,000 median. In both cases, the capital growth component of the total return substantially offsets the income shortfall, making negative gearing a defensible tax position.
Queensland presents a bifurcated picture. West End posted 8.8% annual growth on a $1,350,000 median, with only 22 days on market — metrics that support a growth-led investment thesis. Maroochydore recorded 8.5% growth on a $1,050,000 median, with 28 days on market. Both Queensland suburbs generate capital appreciation well above the national average, giving negatively geared investors meaningful headroom. Indooroopilly matched Maroochydore's 8.5% growth rate at a $1,380,000 median, reinforcing the pattern across inner Brisbane's premium ring.
Victoria presents the most challenging environment for negatively geared investors in 2026. Dandenong's 2.3% growth, Reservoir's 2.8%, and Newtown's 3.8% all fall below the cost of capital in a 4.35% rate environment when holding costs are factored in full. Even Toorak — with a $2,800,000 median and 4.5% growth — generates approximately $126,000 in nominal annual gain, which is substantial in dollar terms but represents a lower percentage return than Queensland and WA equivalents at a fraction of the entry cost. For investors in Victorian middle-ring suburbs, the negative gearing deduction is increasingly functioning as a loss-minimisation tool rather than a wealth-building mechanism.
Brisbane's Rezoning and the Forward-Looking Supply Risk
One development that negatively geared investors in Queensland must price into their forward capital growth assumptions: REA Group reported on 17 September 2026 that a Brisbane inner-city suburb has been rezoned to accommodate 27,000 new homes ahead of the 2032 Olympics. Supply additions of that scale, concentrated in a single precinct, create downside risk for investors in adjoining or competing inner-city suburbs. When new supply enters a market at scale, it competes directly with existing rental stock, placing downward pressure on rents — which worsens the income shortfall component of the negative gearing equation — and can suppress capital growth in nearby markets if buyer demand spreads across a larger pool of available stock.
For negatively geared investors already relying on Queensland's 8%+ growth rates to justify their holding cost, that supply pipeline introduces a variable that requires active monitoring. The historical Australian property bubble analysis available at Bubblepedia documents multiple instances where supply-led corrections followed infrastructure-driven rezoning events — a pattern relevant to anyone building a long-term Queensland investment thesis today.
What Conveyancing and Purchase Costs Mean for Negative Gearing Breakeven
Investors calculating their negative gearing position must account for acquisition costs that are not recoverable in the short term. Stamp duty, legal fees, and conveyancing costs are capitalised into the cost base but do not generate immediate deductions — they add to the capital gain required before an investor reaches breakeven on a nominal basis. Understanding the full acquisition cost structure is covered in the Conveyancing in Australia — What It Is, What It Costs, and How to Choose guide, which details state-by-state cost variation that materially affects the effective entry price investors need to recover before realising a net gain.
In a market where the Cotality Pain & Gain data confirms the median gain is retreating from its peak, the margin between total acquisition cost and eventual sale price is compressing. Investors who purchased in the second half of 2025 — near the peak profitability period — face a longer runway to recoup acquisition costs, particularly if they are in markets where annual growth has slowed to the 2–4% range. The deductibility of holding costs under negative gearing provides annual tax relief, but it does not accelerate the recovery of stamp duty or conveyancing costs, which remain embedded in the capital cost base until sale.
What the Cotality Data Signals for Investors, Vendors, and Agents in Q4 2026
For active investors reviewing their negative gearing strategy heading into Q4 2026, the Cotality Pain & Gain data delivers a clear signal: suburb selection is now the primary determinant of whether negative gearing functions as intended. In WA and Queensland, where growth rates of 8–15% continue to outrun holding costs, the strategy remains intact. In Victoria — where most suburbs are posting growth below 5% — and in regional NSW markets like Port Macquarie and Ballina, the income tax deduction on the shortfall no longer compensates adequately for the opportunity cost of capital deployed at low growth rates. Vendors in slow-growth markets who have held for fewer than five years should model their net position carefully before assuming the 95.4% national profit rate applies to their specific asset. Agents advising investor clients in those markets should be direct: the data no longer supports the assumption that any purchase automatically produces a profitable resale outcome.
