By Jasper Yeghiaian-Alvandi, Investment Analyst, Wilson Asset Management

Australian households have long held most of their net wealth in residential property, a standout figure when you compare it to the lower concentration of residential property ownership in the US, UK and parts of Europe. This comes down to a number of factors, including a cultural affinity towards owning a house and a scarcity of high-quality residential properties driving up dwelling values. This has also historically been paired with a highly favourable tax environment that has included the likes of negative gearing and capital gains tax discounts for properties (though the Labor government’s 2026-27 Budget is winding these back).

For many Australian households, this means their investment portfolios are heavily concentrated in residential real estate, leaving them exposed to sensitivities in interest rate cycles and changes in government policy.

Real estate is not one asset class

A key misconception we encounter when discussing real estate with our investors is that ‘residential’ real estate as a sector is treated as representing the whole asset class. In reality, residential real estate is just one slice of a much larger pie. Within residential real estate alone, there is a high level of nuance. Outside of the family home there are apartments (known as the Multi-Family sector offshore), student housing, and retirement living. Then outside of the residential sector, there are office buildings, retail properties, hotels, healthcare facilities, datacentres, storage and more that represent the commercial real estate sector. Industrial real estate then encapsulates warehouses and distribution centres, manufacturing facilities and the likes of life sciences facilities. Finally, there is land and agricultural real estate, along with special purpose real estate.

Each of these sub-sectors have different types of tenants, lease lengths, income drivers and sensitivities to various economic drivers. A shopping centre leased to various tenants behaves very differently to a healthcare facility that is underpinned by long-term high-quality tenancies. Hence, treating them as a single asset class means missing where the real risk and opportunity actually lies.

The rules have changed – negative gearing won’t save a bad deal

Historically, the WAM Alternative Assets Fund (ASX: WMA) has had limited exposure to residential real estate, as the tax incentives available to retail investors often provided a competitive advantage compared to institutional investment. As a result, as at June 30 2026, residential real estate makes up only 0.7% of the WMA portfolio.

The tax system changes as part of the Labor government’s 2026-27 budget have already had a marked impact on the Australian residential property market. Two of the key changes affecting this market are (Source: NSW Treasury):

• Capital Gains Tax: From 1 July 2027, the government will replace the 50% Capital Gains Tax (CGT) discount with a discount based on inflation and introduce a minimum 30% tax rate on capital gains.
• Negative Gearing: From 1 July 2027, negative gearing of residential property will be limited to new builds. Properties held before the announcement (7:30pm AEST 12 May 2026) will be exempt from these changes.

What these tax changes mean, in practice, is that residential property investments that are unprofitable upon entry no longer have a tax shelter. As such, residential property investments must now stack up on their own fundamentals, such as yield, rental growth, capital growth and a credible path to exit.

Where we are seeing genuine opportunities right now

With markets pricing in further Reserve Bank of Australia (RBA) interest rate rises, the cost of capital is expected to remain elevated. As a result, investments must be able to generate real returns that are not reliant on cheap leverage.

Opportunistic real estate across all sub-sectors of real estate is a compelling area of focus for our team. Opportunistic real estate refers to mispriced or transitional assets, value-add plays and situations where operational or capital improvement can occur. Returns here are driven by hands on active management rather than market movements.

A recent example of this in action is 105 Miller Street, North Sydney, a Wentworth investment held in both the WAM Alternative Assets Fund (ASX: WMA) and the unlisted WAM Real Assets Fund (WRAF). Constructed in 1957, 105 Miller Street was once Australia’s largest office building and served as MLC’s national headquarters for 65 years. Notably, Wentworth acquired the asset at a discount of 63% to the asset’s 2018 sale price and a 67% discount to comparable prime grade office transactions in North Sydney. While a discounted purchase price is attractive, it must also be supported by clear value-add opportunities that will enable a short-to-medium-term price rerating of the asset.  Wentworth intends to refurbish the building while leveraging existing improvements and have assumed conservative lease-up rates to underwrite the purchase. We like this investment for the following reasons:

• 75% of public transport in North Sydney stops directly outside 105 Miller Street, with the building adjoining the Victoria Cross Metro Station entrance (Source: Wentworth Capital).
• $2.4bn of development has been completed in the precinct in the last 5 years with a further $10bn of infrastructure targeted to be delivered in the area by 2028, including the Western Harbour Tunnel and the Warringah Freeway Upgrade (Source: NSW Government).
• There is a deep pool of tenants who are currently unable to access the Inner North Sydney precinct in which 105 Miller Street is located due to limited availability.

I recently sat down with Deep Vaze, Deputy CIO of Real Estate Private Equity at Wentworth Capital, to discuss the building in more detail. You can view our discussion in the video below:

Ultimately, real estate as an asset class spans far wider than residential property. Commercial, industrial or speciality real estate assets each carry very distinct return drivers and risk exposures, adding genuine diversification to a portfolio.

If you would like to learn more about the WAM Alternative Assets Fund (ASX: WMA) or the WAM Real Assets Fund (WRAF), please reach out to me directly at jasper@wilsonassetmanagement.com.au or visit wilsonassetmanagement.com.au