Where rates sit now
The Reserve Bank lifted the cash rate four times in 2026, most recently on 29 September to 4.60%, its highest level since 2011. Markets are pricing a fair chance of another rise at the 3 November meeting. The major banks passed the September rise on in full from 9 October.
| Benchmark | Rate | As at |
|---|---|---|
| RBA cash rate | 4.60% | 29 Sep 2026 |
| 10-year Commonwealth bond yield | ~5.2% | 7 Sep 2026 |
| Average new investor home loan (RBA) | 6.41% | Jul 2026, before the August and September rises |
| Bank commercial property loan, $1m to $8m (ING published) | 6.99% | May 2026, before two rises |
| ING commercial reference rate | 7.91% | 2026, before the September rise |
| Non-bank commercial, full doc (La Trobe Financial, from) | 7.89% | 2026 |
| Small business variable term loan, major banks (RBA indicator) | 9.00% | Aug 2026 |
Add 0.25 to 0.50 points to anything dated before October to bring it up to the current cash rate. Bank margins are set deal by deal on LVR, lease strength and documentation.
Against that, here is what the market is offering:
| Asset | Gross yield | Source, date |
|---|---|---|
| Sydney industrial | 4.1% | realcommercial.com.au, Sep 2026 |
| Sydney retail | 6.4% | realcommercial.com.au, Sep 2026 |
| Office, most capital cities | ≤ 5.5% | realcommercial.com.au, Sep 2026 |
| Brisbane retail / Perth retail | 7.2% / 7.4% | realcommercial.com.au, Sep 2026 |
| Sydney houses | 2.9% | Cotality, Aug 2026 |
| Sydney units | 4.4% | Cotality, Aug 2026 |
These are gross yields on listed or indexed stock, before outgoings. The Sydney averages sit well below the cost of debt. The 7% listings are the tail of the market, not the middle.
The three tests every deal now has to pass
1Does borrowing help or hurt?
Debt only improves your return when the property earns more than the debt costs. Purchase costs (NSW transfer duty, legals, due diligence and finance fees, about 5% to 6% of the price on a $1m to $3m asset) come out of your equity, so the bar is a little higher than the interest rate itself.
interest rate × (1 + purchase costs)At 7% debt and 5.5% costs: 7% × 1.055 = 7.4% net
Below that line, every dollar you borrow pulls your cash return down. Year-one cash return on equity, interest-only at 7%, 5.5% purchase costs:
| Net yield | No debt | 50% LVR | 60% LVR | 70% LVR |
|---|---|---|---|---|
| 6.0% | 5.7% | 4.5% | 4.0% | 3.1% |
| 7.0% | 6.6% | 6.3% | 6.2% | 5.9% |
| 7.5% | 7.1% | 7.2% | 7.3% | 7.3% |
| 8.0% | 7.6% | 8.1% | 8.4% | 8.7% |
| 9.0% | 8.5% | 9.9% | 10.6% | 11.6% |
Arithmetic only: (net yield − rate × LVR) ÷ (1 − LVR + purchase costs). Before tax, depreciation and growth.
At 7% the debt does nothing for you. At 8% it starts to work, and the more you borrow the more it works. That 1-point gap is the whole argument for hunting 8%.
2Will the bank lend enough?
Commercial lenders test interest cover: net rent divided by interest. A minimum cover of about 1.5 to 2 times is common, and some lenders test at a buffered rate rather than the actual rate. Your lender's covenant decides the real number. The yield you buy at then caps how much you can borrow.
net yield ÷ (interest cover × interest rate)| Net yield, at 7% debt | 1.5× cover | 1.75× cover | 2.0× cover |
|---|---|---|---|
| 6% | 57% | 49% | 43% |
| 7% | 67% | 57% | 50% |
| 8% | 76% | 65% | 57% |
| 9% | 86% | 73% | 64% |
A 7% asset at a 1.75× covenant supports a loan of only about 57% of the price, so you need more cash in. Interest cover tightens further with every rate rise, and it is tested again at each review, not just at settlement.
3Are you being paid for the risk?
A Commonwealth bond pays about 5.2% for ten years with no tenant, no vacancy, no roof and no land tax. A property at 7% pays you about 1.8 points for carrying all of that, plus the cost and time of selling it. At 8% the margin is about 2.8 points. Shorter leases, weaker tenants and regional locations need more.
The hurdles we work to
Put the three tests together and you get a set of working hurdles. These are Prominent Capital's own buying rules at today's rates, not market averages. Recalculate them if rates move.
| Asset type | Net yield we look for |
|---|---|
| Long lease (5+ years remaining), strong tenant, metro | 7.5% minimum |
| Multi-tenant strip retail, small office, local tenants | 8.0% to 8.5% |
| Short lease (under 2 years), vacant, regional or specialised | 9%+, or priced on vacant possession |
| Established residential investment | Rarely gets there (Sydney 2.9% to 4.4% gross). Buy for development or value-add, not income. |
| Development or value-add (yield on cost) | 1.0 to 1.5 points above the yield the finished asset would sell at |
Check the "7%" before you believe it
Most advertised yields are gross, and some are calculated on a rent the property is not yet getting. Turn the headline into a net yield before you compare it to your rate:
- Outgoings the tenant does not pay. Read the lease. Under NSW retail shop leases, recovery of land tax from the tenant is restricted, and any outgoing not in the lease and disclosure statement stays with the owner.
- Land tax at your holding, not the vendor's. It depends on who owns the land and what else they own.
- Lease expiry and vacancy. A 7% yield with 14 months left on the lease is a vacancy risk, not an income.
- Rent versus market. Over-rented properties show a high yield that resets downward at renewal.
- Capital works. Roof, lifts, fire services, accessibility and NCC upgrades. A building-code review finds these before you own them.
- Management, insurance and a vacancy allowance. Budget them even if the vendor's figures don't.
Where 8% still comes from
Buy it below replacement value
Higher rates mean more mortgagee, receivership, stalled-project and motivated-vendor sales. Those sellers are pricing for certainty and speed, not yield, so the yield on the price paid can be well above the market average. The catch is time: the deal goes to the buyer who can tell what the asset is worth fastest.
Make it through planning
Yield on cost is the rent the finished asset earns divided by everything it cost to get there. Planning is what changes the rent side without changing the land price:
- Add a secondary dwelling (granny flat) to an existing house
- Dual occupancy, then keep one and sell one
- Change of use to a higher-rent tenant
- Subdivision, or a redesign under the low and mid-rise housing policy
- Re-lease a vacant or under-rented building after compliance upgrades
new annual net rent ÷ (price + build + fees + finance + holding)Finance during the build counts. At 7% to 9% development debt, holding costs on a two-year project are a much bigger share of the total than they were two years ago, so the margin over the selling yield has to be real.
Structure it
- Lower the LVR on assets under the break-even yield, rather than borrowing at negative leverage.
- Ask for vendor finance or deferred settlement, especially from estates and motivated vendors.
- Joint-venture with the landowner, so land is contributed rather than funded at 7%+.
Tax changes that move the maths from 1 July 2027
The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 passed Parliament on 25 June 2026.
- Negative gearing on established homes is quarantined. For established residential property acquired after 7.30pm AEST on 12 May 2026, net rental losses can no longer be deducted against wages. They carry forward against residential rental income or gains.
- New dwellings and commercial property are outside the quarantine. A negatively geared established home now has to pay its own way; new builds and commercial assets keep the old treatment.
- The 50% CGT discount is replaced for individuals and trusts by cost-base indexation with a 30% minimum tax on gains, with options for new dwellings and affordable housing.
- New SMSF borrowing for residential property is being closed off. Existing arrangements are grandfathered.
The upshot: investors can no longer rely on tax and growth to carry a weak yield on an established home. Yield, or a new dwelling, now has to do the work. That pushes demand toward new product and toward the development sites that create it.
Test a deal
Enter a listing's numbers. Use net income (rent less outgoings the owner pays), not the advertised gross yield.
Interest-only, before tax, depreciation and growth. A screening tool, not a valuation or a finance assessment.
How we can help
Prominent Capital is backed by a planning group, so we look at a property for what it could earn, not just what it earns today. Send us a listing and we will come back with the planning answer: what can be added, by which pathway, and whether the yield on cost clears the hurdle. If it does and the vendor needs to move, we may be the buyer.
Send us a listing Distressed and time-critical sales
Sources
- ABC News, RBA hikes cash rate to 4.6 per cent in fourth rate rise of 2026 (29 Sep 2026)
- Savings.com.au, Cash rate hits 4.60% after fourth RBA hike of 2026
- Integrated Finance Group, Banks pass on RBA rate rise, October 2026
- TS2, Australia's 10-year yield returns above 5.2% (7 Sep 2026)
- Everstone Finance, Commercial loan rates Australia 2026 (ING, La Trobe and RBA indicator rates)
- Property Investment Professionals, Rental yields 2026 (Cotality Aug 2026 yields, RBA F6 investor rates)
- Elite Agent, Australia commercial property outlook (realcommercial.com.au, Sep 2026)
- The Adviser, Negative gearing and CGT reforms pass Parliament (25 Jun 2026)
- BDO, Tax Reform No. 1 Bill: CGT and negative gearing changes
- NSW Small Business Commissioner, Can the landlord make me pay land tax?
General information only, current at 15 October 2026. It is not financial, tax, credit or legal advice and does not take your circumstances into account. Rates change; confirm pricing and covenants with your lender, tax treatment with your accountant, and lease terms with your solicitor before acting.