Negative Equity on an Investment Property: What It Means and What to Do in 2026

Published 17 October 2026 · Prepared by the Property Investment Professionals research desk · Prices, law and lender rules checked 16 October 2026

The Reserve Bank's October Financial Stability Review says fewer than 1% of mortgage borrowers owe more than their property is worth. Two weeks later its Board minutes repeated the point: "very few borrowers were in negative equity." Both statements are true, and neither is much comfort to an investor facing negative equity on an investment property bought for $1.2 million in Sydney in February at a 90% loan-to-value ratio. Cotality has Sydney values 8.6% below their February peak, which puts that property at about $1,096,800 against a $1,080,000 loan. The owner still has $16,800 of equity, so by the RBA's definition this is not negative equity. After a 3% selling cost, though, a sale would leave the owner $16,100 short at settlement.

That gap, between the aggregate and the individual, is what this guide is about. Nationally, values are 5.2% below the March 2026 peak after six straight monthly falls, 97% of capital-city suburbs fell over the September quarter, and PropTrack's suburb-level data has 81% of Greater Sydney house suburbs lower than a year ago. Most owners bought years ago and have deep equity. The exposed group is specific: recent buyers, high-LVR borrowers, interest-only borrowers and 5% Deposit Scheme participants, concentrated in Sydney, Melbourne and Canberra and, on the resale data, in units.

This guide measures negative equity properly, shows who is in it, explains when it bites, and gives a sell, hold, refinance or restructure decision tree under the enacted reforms. General information only; take your own numbers to a licensed mortgage broker and a registered tax agent.

Sell, hold, refinance or restructure: the comparison

Source: our framework on the RBA FSR (October 2026), APRA June-quarter property exposures, the National Credit Code s 72 hardship provisions and the Treasury Laws Amendment (Tax Reform No. 1) Act 2026. Illustrative; lender policy varies.

The rows are not comparable with each other, which is why there is no score. If the cash flow holds, holding usually beats crystallising; if it does not, the only question is whether you sell on your own terms or the lender's. The decision tree below sets out when each applies.

What is negative equity, and how do you know if you are in it?

The arithmetic that matters

Equity is the current value of the property less the loan balance. Negative equity is when that number is below zero; the RBA's under-1% estimate uses that measure. The net sale position subtracts selling costs as well, and is the number a seller needs, so we report both. Three things decide whether a given investor is in it: the price paid, the LVR at purchase and whether any principal has been repaid since.

The purchase date is doing most of the work in 2026. Cotality's national index peaked in March; Sydney's in February, Brisbane's and Adelaide's in May, Perth's in April. Anyone who bought at or near those months bought at the top of the cycle, and the fall since is the whole of their equity erosion.

Source: our calculation. After-cost threshold = 1 − LVR ÷ (1 − 0.03). Selling costs assumed at 3% of value (agent commission, marketing, conveyancing); actual costs vary by state, agent and price.

The after-cost column is the one a seller needs. A property is only worth what is left after you pay to sell it, and at a 90% LVR the margin between a clean sale and a shortfall is a 7% fall. Sydney (−8.6%) and Melbourne (−7.5%) have already exceeded it from their peaks; Canberra (−6.2%), Perth (−6.0%) and Brisbane (−5.4%) are within one to two points of it.

Four illustrative positions

Source: our calculations on Cotality Home Value Index, September 2026 (from-peak figures) and the PropTrack September-quarter suburb AVM table (suburb falls rounded to whole percentages as published). Interest-only loans assumed, so balances are unchanged since purchase. Illustrative only.

Position D shows what four and a half years of holding does to the same arithmetic, and Position A shows the distinction that matters: positive equity, but a shortfall if sold. A unit bought at Melbourne's 2022 record, which has now been below that record for four and a half years, is still comfortably in positive equity at 80% LVR, and would be further ahead if the loan had been principal and interest: four and a half years of repayments on $520,000 at today's rates would have cleared roughly $29,000 of principal, and more at the lower rates of 2022–24.

How to measure your own position

Use the loan balance from your lender's app, not the original amount, and the strongest valuation evidence available: a bank desktop valuation (your broker can order one, usually free), an automated valuation, or comparable sales from the past three months adjusted for the 4.4% discounting Cotality now measures in the capitals. An agent's appraisal runs high in a falling market. Subtract 3% for costs. If the result is negative or within 5% of zero, treat yourself as exposed; the Sell or Hold Planner takes that valuation and loan balance as its first inputs.

How many investors are in negative equity in 2026, and who is exposed?

The RBA's ladder

The Financial Stability Review of 1 October estimates negative equity from loan-level data that tracks balances against updated valuations. It finds "less than 1 per cent of borrowers estimated to owe more on their loan than the value of their property." Its stress case is that "even in a scenario involving a large uniform fall in housing prices of 20 per cent from current levels, only around 5 per cent of mortgages would fall into negative equity." The March Review ran a 40% fall and found about 80% of mortgagors would still have positive equity.

Source: RBA Financial Stability Review, October 2026 (Chapter 2.1, Graph 2.6) and March 2026. The RBA does not publish negative equity by city or by borrower type.

The Review is specific about who sits in that first rung: "Recent buyers and those who took out higher LVR loans are more likely to be in negative equity. This includes first home buyers participating in the Australian Government 5% Deposit Scheme." On investors specifically: "most investors have considerable equity positions in their properties and have historically exhibited lower rates of arrears and default than owner-occupiers." Our analysis of the Review covers the cash-flow and buffer findings in full.

Two limits to the reassurance. A uniform fall is not this downturn: Sydney is 8.6% below peak and Adelaide 2.9%, so a national average understates a recent Sydney buyer's exposure. And "less than 1 per cent" of all mortgages is still tens of thousands of loans, and the Review's own description of who holds them points to the past two years of lending.

The lending data

APRA's June-quarter property-exposure statistics (released 17 September) describe the loans written at the top of the cycle. Of new lending in the quarter, 29.7% was at an LVR of 80% or above, 23.5% was interest-only and investors were 35.6% of the total. Separately, the RBA puts the median borrower's buffers, offset and redraw together, at more than a year of repayments.

Interest-only matters because it freezes the loan balance. A principal-and-interest borrower at 90% LVR who bought a year ago has repaid about 1 point of LVR; an interest-only borrower has repaid none, and over a five-year term the gap compounds to roughly 5 to 6 points, the difference between positive and negative equity for most positions in the table above. The trade-off is in our interest-only versus principal-and-interest guide.

Where the falls are

Source: Cotality Home Value Index, September 2026 (released 1 October 2026); PropTrack September-quarter 2026 suburb automated valuation estimates (not sale prices), as published by realestate.com.au on 11 October 2026 and captured the same day from the full table (5,245 suburbs; PropTrack's own medium-to-high confidence filter), grouped by ABS Greater Capital City area (Greater Sydney includes the Central Coast; Sydney proper is 86% of house suburbs); a suburb counts as down if its published 12-month change is below zero. Growth rounded to whole percentages as published. Our counts.

Brisbane and Perth are 5% to 6% below their 2026 peaks, but their suburbs are still above a year ago, so only the mid-2026 buyer there is exposed. Sydney, Melbourne and Canberra have been falling for longer and more broadly; a buyer there at almost any point in the past 12 months has lost ground. The suburb data shows how far the average hides: on PropTrack's September-quarter table, house values are down 18% over the year in Oakville (Sydney's Hawkesbury) and 15% in Mount Waverley, and unit values are down 22% in Gardenvale. Those are automated estimates for whole suburbs, not sale prices, but at a 90% LVR each is a negative-equity number.

Units carry the losses

Cotality's Pain & Gain report for the June quarter, which predates most of the September-quarter fall, already had the pattern. Nationally 95.4% of resales made a nominal gain, with a median loss of $45,000. In Melbourne 20.8% of unit resales lost money, in Sydney 11.4%, against 4.3% and 1.5% for houses, and units were 63% of the national value of losses and 74% of loss-making resales in the capitals. Our units-versus-houses guide set out why the two should be underwritten separately.

Resale losses are not negative equity: the report compares sale price with purchase price, not with the loan. What it shows is where resale-loss exposure is highest, which is units bought since 2023 in Sydney or Melbourne; a house bought before 2024 almost anywhere shows little of either. The September-quarter report, due around December, will show the first full quarter of the current fall.

Does negative equity matter if you are not selling?

What the lender can and cannot do

A home-loan contract is not a margin loan. There is no loan-to-value covenant that triggers a cash call when the property falls in value, and lenders do not revalue performing loans to look for one. As long as repayments are made, a borrower at 110% LVR is generally treated the same as one at 50%, though loan contracts and lender policies vary. The RBA's data supports that: arrears sit "around pre-pandemic levels" and over 90% of non-performing housing loans are "well secured", so banks have little reason to force sales at scale.

The lender does reassess when you ask for something. A refinance is an application at today's valuation and the serviceability test lenders apply to new lending (the loan rate plus APRA's 3-percentage-point buffer), and above 80% LVR most lenders require lenders mortgage insurance. At the end of an interest-only term, a request to extend is a credit decision assessed on the principal-and-interest repayment over the remaining term at current income and value; a borrower who fails it reverts to principal and interest, which on a $600,000 loan is a step from about $3,375 to about $4,070 a month after a five-year term, with principal and interest at 6.55% over the remaining 25 years.

LMI protects the lender

Lenders mortgage insurance is paid by the borrower and protects the lender. If the property sells for less than the loan and the lender claims on the policy, the insurer can pursue the borrower for the amount paid out. Owners who paid LMI on a 90% or 95% loan sometimes assume it covers them; it does not. The Commonwealth guarantee under the 5% Deposit Scheme is a guarantee to the lender, not to you: it replaces LMI, and a shortfall on sale remains your debt to the lender.

The constraint that actually binds

The number that decides whether you can hold is the monthly net cash position. At an illustrative post-hike investor interest-only rate of 6.75% (RBA data put new investor interest-only loans at 6.51% in August, before the 9 October pass-through), a $855,000 loan costs $57,700 a year in interest. At Cotality's national gross yield of 3.85% on an $853,200 property, rent is about $32,850. Add $7,000 of rates, insurance, management and maintenance and the net rental loss is about $31,900 a year. For a grandfathered investor on a 37% marginal rate (39% with the Medicare levy), the tax saving is about $12,400, leaving an after-tax cash cost of about $19,400 a year, or $1,620 a month. That is the price of waiting for prices to recover, and the next section is about whether waiting pays.

Rent is the other lever, and SQM's September data has unit asking rents falling in seven of eight capitals, so an investor in the exposed segment cannot assume rent growth closes the gap; our September vacancy analysis has the capital-by-capital detail.

What happens if you sell in negative equity?

At settlement

In Position B above, net proceeds after a 3% selling cost are $827,600 against an $855,000 loan. The borrower has to find $27,400 at settlement, plus any discharge fee and, on a fixed-rate loan, break costs. If the cash is not there, the lender can refuse to discharge (the sale cannot settle), agree to a shortfall arrangement that converts the residual to an unsecured debt with a repayment plan, or, if the loan is in default, take possession and sell itself. A lender is more likely to agree to a shortfall arrangement when a borrower approaches it before arrears with evidence that the sale is at market value, and less likely when the shortfall is first disclosed after exchange; that is our reading of lender practice, not a policy any lender publishes.

A mortgagee sale is the worst version: the lender must take reasonable care to obtain market value, but a forced campaign on a fixed timetable in a market with a 41-day national median time to sell and 4.4% capital-city vendor discounting does not get the vendor's price, and the shortfall after the lender's costs is still the borrower's debt. Sell on your own campaign, negotiate the shortfall before you list, and keep the loan performing throughout.

The tax position

A loss on sale is a capital loss, worked out against the reduced cost base, which starts from the cost base but excludes amounts already deducted, such as capital works (Division 43) deductions. Using Position B and assuming no capital works have been claimed in six months of ownership, the reduced cost base is the $900,000 purchase price plus incidental costs of acquisition and disposal: about $35,000 of stamp duty (New South Wales rate; Victoria's is higher), roughly $2,000 of purchase conveyancing and about $25,600 of selling costs, so around $962,600. Capital proceeds are $853,200, so the capital loss is about $109,400 on those assumptions; claimed capital works or different costs change the figure. Under the ATO's rules that loss offsets capital gains in the same year and carries forward indefinitely against future capital gains, applied before any discount; it never reduces salary or rental income. For an investor who expects to sell a profitable property later, including the deferred gain crystallised by the 30 June 2027 deemed disposal described below, the loss has real future value. For an investor with no other assets, it may never be used.

Interest on any residual shortfall debt after the sale is a separate question: deductibility after the income-producing asset is gone depends on the facts and the nexus test in the ATO's ruling TR 2004/4, and it is a point for your tax agent rather than a rule to assume either way.

A worked example of the alternatives

Take Position B (bought March 2026 at $900,000, 95% LVR, $855,000 interest-only, grandfathered because the contract predates 12 May 2026) and run three years forward under four price paths. Interest-only holding costs $19,400 a year after tax, as calculated above, held flat for simplicity: $58,300 over three years. The principal-and-interest column assumes a switch now at 6.55% (repayment about $5,430 a month), which repays roughly $30,400 of principal over three years at an after-tax interest cost of about $53,500, lower than interest-only because the balance falls and the rate is 0.20 points lower. The net position in each case is the sale position in 2029 less the holding cost paid to get there, all nominal and before any return on the cash.

Source: our calculations, assumptions as in the How we calculated box; every path starts from the $900,000 purchase at the peak, applies the stated trough, then growth for two full years. Price paths are illustrative readings of NAB's October Housing Monitor (11% peak-to-trough, floor mid-2027), CBA's 1 October forecast (about 9% peak-to-trough, recovery during 2027) and Cotality's 10% to 15% range; none is a forecast of this property. "Net" subtracts the cumulative after-tax holding cost (interest and ownership costs less rent and tax saving) from the sale position; principal repayments are not a cost because they sit inside the P&I sale position. Nominal, undiscounted, and before any return the seller could earn on cash.

Counted properly, with the holding cost included, every interest-only path leaves the owner further behind in 2029 than selling today: −$89,000 on NAB's path and −$54,100 even on CBA's recovery path, against −$27,400 now. The equity recovers, but the cash spent to wait for it is larger. Principal and interest changes the arithmetic more than the price path does: the repayments are about $620 a month higher than interest-only, but that money builds equity rather than being spent, and on CBA's path the P&I holder finishes about $8,500 ahead of selling today. On NAB's path or a flat market a P&I holder is still $23,000 to $26,000 behind over three years, and on the deeper fall far behind.

Three years is therefore too short a horizon for most holds to pay. The reason to hold is "my cash flow can carry this, I can pay principal, and I would want to own this property well beyond 2029", rather than "prices will recover". If any of those three is missing, the arithmetic favours selling early on your own terms, with the capital loss as the consolation.

What does the enacted negative gearing and CGT reform change for an under-water investor?

Grandfathered or quarantined

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. From 1 July 2027 it quarantines net rental losses on established residential dwellings whose ownership interest was last acquired after 7:30pm AEST on 12 May 2026. The acquisition test generally follows the contract date, not settlement. Quarantined losses are not lost: they offset residential rental income from other properties, carry forward indefinitely, and are applied against residential capital gains at sale. What they no longer do is reduce your salary tax in the year you incur them. Pre-cut-off purchases, eligible new dwellings and complying superannuation funds are outside the rule. The detail, including the entity carve-outs, is in our negative gearing guide, and the negative gearing calculator shows the annual cash value of the deduction for your own figures.

For the holding-cost arithmetic above this is the difference between an after-tax cash cost of about $19,400 a year and the full pre-tax loss of about $31,900. A post-cut-off investor who contracted on an established house in June 2026 and is now under water has one more year of the salary offset (2026-27), then carries the full cash loss from July 2027 until residential income or a residential capital gain absorbs it. For a single-property investor who sells at a loss, the quarantined deduction may sit on the carry-forward ledger for years.

Source: Treasury Laws Amendment (Tax Reform No. 1) Act 2026, Schedule 2; our arithmetic from the holding-cost example, assumptions as in the How we calculated box. The "new residential dwelling" definition sits in Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, introduced on 14 October 2026 and not yet passed; do not assume an edge case qualifies.

The RBA's October Review notes in a footnote that grandfathered negative gearing could motivate some borrowers to hold; from July 2027 that subsidy applies to grandfathered investors only.

There is one more reason for a grandfathered investor to hold that the sums above do not show: grandfathering attaches to the property, not to you. Sell it, and any established dwelling you buy later is a post-cut-off purchase with quarantined losses. A grandfathered property in negative equity is the last fully deductible established-dwelling position you will own, which is a reason to exhaust the hold options before the sale options.

The 30 June 2027 valuation

The same Act changes the CGT method from 1 July 2027. Qualifying assets held by Australian-resident individuals (and, under separate provisions, trusts) on 30 June 2027 are treated as sold at market value just before 1 July 2027 and reacquired at that value, subject to the Act's eligibility conditions and exclusions. The resulting initial capital gain or capital loss is deferred to the later actual sale, so nothing is payable or deductible that day. At the real sale, the deferred gain keeps today's 50% discount and growth after 30 June 2027 is taxed on the CPI-indexed gain; the Act's 30% minimum tax applies to certain capital gains of eligible resident individuals under its own conditions, so confirm how it applies to you. Our guide to the 1 July 2027 changes has the mechanics and a records checklist.

For an under-water property the deemed value is below your cost base, so the deferred amount is an initial capital loss rather than a gain, brought to account at the actual sale under the transitional rules, and the 30 June 2027 value becomes the base from which any later, indexed gain is measured. How that deferred loss interacts with quarantined rental losses is a point for your tax agent. The countdown guide lists the evidence to collect around June 2027, under water or not.

Should you sell, hold, refinance or restructure? The decision tree

Branch 1: cash flow fine, net sale position negative

This is Position A and Position B for most buyers: a loan at or above the value, a shortfall if sold, repayments being met, buffers in place. The move is to stop the LVR drifting and let time and rent do the work.

• Do not apply to refinance. Above 80% LVR you will pay LMI again and may be declined; the enquiry is recorded on your credit file and the next lender will see it.
• Switch to principal and interest if the cash flow allows, or make the equivalent payments into an offset account. On $855,000 that is about $800 a month of principal in year one and it is the single biggest lever on the three-year table above.
• Review the rent at every lease renewal against SQM's and Cotality's capital-city data, and budget for longer letting periods in Sydney and Melbourne units.
• Diarise the interest-only expiry and start the extension conversation 6 to 12 months out.

Branch 2: cash flow strained, cause temporary

A vacancy run, a job change, a medical event, a partner's income pause. Under section 72 of the National Credit Code you can give your lender a hardship notice at any time; the lender must respond within 21 days, or request information and respond within 21 days of receiving it. The usual arrangements are a repayment pause of three to six months, reduced repayments, a switch to interest-only, a term extension, or capitalising arrears. A hardship arrangement is reported on your credit file as such, but it is not a default; the Australian Financial Complaints Authority handles disputes. Lodge before the first missed payment, not after.

Branch 3: cash flow strained, cause permanent

Interest-only is expiring and the principal-and-interest repayment does not fit; the rent will not cover the gap; the buffers will be gone in a year. Holding here is a slow version of a forced sale, and the better move is to sell while the loan is still performing: get a valuation and an honest selling-cost estimate, calculate the shortfall, approach the lender with the numbers and a request for a shortfall arrangement before listing, run a normal campaign priced to the market, settle, pay or restructure the residual, and record the capital loss. Our mortgage-stress guide covers the restructure options in more depth, and the exit-strategy framework covers the selling costs.

Branch 4: equity thin but positive, rate uncompetitive

At 80% LVR or below on current value, refinancing still works and may release the cash flow that makes holding possible; between 80% and 90% the LMI premium usually wipes out the rate saving, and above about 90% most lenders will not refinance. Ask your current lender for a rate review first; a retention discount costs nothing and involves no valuation.

Source: our framework. Illustrative; lender policies and your circumstances differ.

Which investor profile are you? Five profiles

Profile 1: the February 2026 Sydney buyer

Situation: House bought at $1.2 million in Sydney's north-west in February 2026, 90% LVR, $1,080,000 interest-only for five years, grandfathered. Value now about $1,096,800 on the city index. Rent $1,050 a week; $60,000 in offset.

Reasoning: Equity is positive; the net sale position is about −$16,100. Interest at 6.75% is about $72,900, rent $54,600, costs $9,000, net loss $27,300, after-tax cost about $16,700 a year: affordable with the buffer, and the salary offset is permanent because the contract predates the cut-off.

Strategy: Branch 1. Hold, keep building the offset or redirect it to principal, leave the loan alone until the interest-only expiry in 2031, and reassess at the 30 June 2027 valuation.

Profile 2: the 5% Deposit Scheme owner who wants to invest

Situation: First home bought in March 2026 at $900,000 with a 5% deposit under the expanded scheme, $855,000 principal and interest, owner-occupied. Wants to keep it and buy an investment property in 2027 using "equity".

Reasoning: Equity is −$1,800 and the net sale position about −$27,400 today. Principal repayments add about $9,500 a year, so on a flat market the net sale position reaches zero in about three years, and the usable-equity test for a second purchase (80% of value less the loan) is years further away. This is an owner-occupier weighing a first investment loan, not an investor with an existing negatively geared loan; the RBA names the cohort as the exposed one, and the scheme's guarantee protects the lender rather than giving the buyer any equity protection.

Strategy: No investment purchase in 2027 or 2028. Keep paying principal, keep the buffer, and revisit when the loan is below 80% of a conservative valuation.

Profile 3: the 2022-peak Melbourne unit investor

Situation: Two-bedroom unit in Melbourne's inner south bought in March 2022 at $650,000, 80% LVR, principal and interest since settlement; loan now about $490,000, value about $600,000 on the city index, rent $600 a week and flat for a year.

Reasoning: Positive equity of about $110,000 gross, $92,000 after costs. A stagnation case rather than a negative-equity one; the question is opportunity cost.

Strategy: Run the Sell or Hold Planner with the 30 June 2027 deemed disposal: the gain to that date is small, the post-2027 treatment is indexed, and a sale after mid-2027 may be no worse than before. Compare the after-tax proceeds reinvested elsewhere against another five years of flat rent. Grandfathered, so the gearing treatment does not force the timing.

Profile 4: the portfolio investor with one post-cut-off purchase

Situation: Three properties. Two bought in 2017 and 2020 with deep equity and positive cash flow; one established house contracted in June 2026 at $950,000, 85% LVR interest-only, now about 7% below purchase in a Brisbane growth corridor.

Reasoning: The 2026 purchase is not under water, but it is close: value about $883,500, loan $807,500, net sale position about $49,500. Another 6% fall from here would take it to zero after costs. From 1 July 2027 its net rental loss is quarantined, but this investor has residential rental income from the other two properties to absorb it, which is exactly the case the Act's design favours.

Strategy: Hold all three; the quarantined loss is absorbed within the portfolio, so the cash cost of holding the 2026 property is the same as for a grandfathered investor. Use the planner's sell-first ranking to confirm that if one property must go in the next two years, it is not the one carrying a capital loss and a Brisbane recovery profile.

Profile 5: the interest-only expiry with a shortfall

Situation: Apartment in Sydney's Parramatta corridor bought in 2024 at $780,000, 90% LVR interest-only, term ending March 2027. Unit value now about $720,000 on the suburb data; loan $702,000. Rent $680 a week, down from an asking $710. One income in the household, in a sector shedding part-time hours.

Reasoning: Equity about $18,000; net sale position about −$3,600. The principal-and-interest repayment from March 2027 is about $4,620 a month over the remaining 27-year term, against interest-only of about $3,950; rent of about $2,950 a month covers less than two-thirds of it. Buffers of three months. This is Branch 3 unless an interest-only extension is approved, and at a 97% LVR at current value, with falling unit rents, an extension is unlikely.

Strategy: Ask the existing lender for an interest-only extension now with a full application; if declined, prepare a sale for early 2027 with the shortfall negotiated before listing, and lodge a hardship notice if income falls in the meantime. The capital loss of roughly $110,000 (on the same assumptions as the Position B example) carries forward. Selling while the loan performs keeps the credit file clean and the price in the vendor's hands.

What should you do next?

1. Measure the position as in the first section: loan balance, desktop valuation, 3% off for costs.
2. Stress the cash flow at current rent with a 2% to 4% vacancy allowance (more for Sydney and Melbourne units), interest at your rate plus 0.25 points, and the principal-and-interest repayment if your interest-only term ends within two years.
3. Classify the branch. Cash flow fine and equity negative: hold and pay principal. Temporary squeeze: hardship notice. Permanent shortfall: negotiate, then sell. Thin positive equity: rate review before any refinance.
4. Confirm your gearing status. Contract date before or after 7:30pm AEST on 12 May 2026; established or new dwelling; entity. This sets the cash cost of the hold from July 2027.
5. Book the 30 June 2027 valuation evidence now, under water or not.
6. Run the planner. The Sell or Hold Planner models each property under the enacted rules, ranks a portfolio by which to sell first, and produces a PDF for your accountant and broker.

The Bottom Line

Negative equity in 2026 is rare across all borrowers and concentrated in a small, identifiable group. The RBA's "less than 1 per cent" sits alongside Sydney 8.6% below peak, 81% of Sydney house suburbs down over the year and one in five Melbourne unit resales losing money, because the exposed group is the buyers of the past two years at high LVRs, on interest-only terms, in the three capitals that have fallen furthest, and in units. If that is you, the first question is cash flow.

Our analysis is that a hold pays only when three things are true: the net cash loss is affordable for three to five years, you are repaying principal or the equivalent, and you would want to own the property at the end. On a three-year horizon the holding cost outweighs the equity recovery on every interest-only path we modelled, so the case for holding is a long one. For grandfathered investors the tax system subsidises the wait; for post-cut-off buyers of established dwellings it stops doing so on 1 July 2027. Everyone gets a deemed-disposal valuation that day, so book the evidence. And if the cash flow cannot carry the hold, a hardship notice (a decision within 21 days once the lender has the information it needs) and your own sale campaign are both better than the lender's.