New research has revealed that investors rushing into brand-new and off-the-plan properties to preserve tax benefits could end up $100,000 worse off.
The InvestorKit analysis looked at the post-Budget case for new builds after the Albanese government scrapped negative gearing for established properties and replaced the 50 per cent Capital Gains Tax (CGT) with an inflation-linked method.
Tax off-sets for established properties purchased before the Budget will be grandfathered.
But investors pivoting to new builds have been warned they may not be better off, with the modelling revealing that an established property still delivered significantly stronger after-tax returns over a 10-year time frame, despite receiving fewer tax benefits in the short-term.
InvestorKit CEO Arjun Paliwal said investors risked focusing on tax outcomes at the expense of the fundamentals that have historically driven long-term wealth creation.
“A tax deduction can improve your cash flow, but it can’t create capital growth where the fundamentals don’t support it,” he said.
“Investors who focus on tax outcomes over market fundamentals risk leaving significant wealth on the table over the long term.”
InvestorKit CEO Arjun Paliwal. Picture: Supplied
Further, the analysis found that due to the tax reforms, new build suburbs would end up “disproportionately investors” as owner-occupiers would not receive the same tax benefits.
The InvestorKit modelling was based on two $750,000 properties bought by an investor on July 1 – a new property and an established one – that were each held for a 10-year period and then sold.
It then considered capital growth, vacany rates, depreciation, interest-only loan amortisation, tax incentives and CGT at sale.
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InvestorKit
“The established property delivers a net total return of $266,000 over the 10-year hold,” the report found.
“The new build delivers $166,000.
“The difference is nearly $100,000 in favour of the established, despite the new build retaining negative gearing, depreciation, and the 50 per cent CGT discount.
“The new build wins on cash flow during the hold by $108,000 but loses on capital growth, net of CGT, by $208,000.
“The capital growth advantage is roughly double the cash flow disadvantage, which is why the established finishes almost $100,000 ahead.”
A house under construction. Source: iStock
The report comes as Access Wealth managing director and founder Dory Senior, whose national property acquisition company focuses solely on new builds, said the post-Budget pivot had created a dangerous belief that new builds were a guaranteed solution or “magic bullet” for the years ahead.
“The risk isn’t in buying new — it’s in buying new without doing the groundwork,” Mr Senior said.
“When people chase negative gearing without understanding the fundamentals, that’s when they get caught out.”
He said recent collapses in the buyer’s agency sector – including operators holding millions in prepaid fees – should remind investors that not all advice is created equal.
“When businesses prioritise sales over delivery, consumers get hurt,” he said. “The same conditions that allowed that to happen are re-emerging in the new-build sector given the proposed property tax reforms.”
He said some investors were being lured into new-build contracts without understanding builder insurance limits, construction delays, inflated pricing, or the difference between full-turnkey and partial-turnkey contracts.
“We’ve seen people handed a property with no driveway, no landscaping, or no blinds because they didn’t know what to look for,” Mr Senior said.
Dory Senior of Access Wealth
Mr Senior said most mistakes in the new-build market stemmed from investors skipping the basic sequence of decision-making, such as starting with the property instead of first assessing their goals, financial capacity, market fundamentals, and the credibility of the builder.
“If you don’t work through those steps in order, you’re relying on luck, which is never a sound strategy,” he said.
He said the first step was understanding your goals, something many investors may skip entirely in the rush to secure a tax-advantaged property in the months ahead.
“If you don’t know whether you’re investing for retirement, income, or to pay off your home faster, you can’t judge whether a property is fit for purpose and that’s where poor decisions start,” he said.
Mr Senior said the second step, assessing resources, had become the biggest pressure point since the Federal Budget.
“Your borrowing capacity, equity position, and weekly affordability matter far more than any retained tax benefit,” he said.
“Banks removing negative-gearing add-backs for established properties is already cutting borrowing capacity by $150,000 to $200,000 for some investors.”
Treasurer Jim Chalmers has already backflipped on the budget tax on testamentary discretionary trusts. Canva: The Australian
A key part of this assessment, he said, is understanding the true cost of holding a property before committing.
“We don’t model properties on best-case scenarios,” he said.
“We deliberately stress-test the numbers, which means we overestimate costs, build in vacancy buffers, assume higher interest rates, and allow for council rates, water rates, insurance, property management fees and maintenance – even where the property is brand new.”
He also typically allows around $1000 a year for maintenance and deliberately underestimates rental income to create a conservative picture of affordability.
“The point is not to make the numbers look pretty,” he said. “The point is to understand whether the client can comfortably hold the asset if things are not perfect.”
Depending on income, tax position and lending structure, conservative modelling often shows a holding cost of around $300 per week after buffers, he said.
When current rental estimates and current interest rates are applied, that figure can fall below $200 per week and even lower when investors contribute cash toward the deposit.
“For many investors, once you model the property properly, the question becomes much clearer,” Mr Senior said. “Even if the property costs $50,000 to $60,000 to hold over 15 years, the real question is whether you believe a well-selected property in a high-growth location can grow by more than that over the same period. If you don’t think it will, then don’t invest.”
He said investors should not rely on interest rates falling, but they should understand that holding costs can change meaningfully over time.
“Rates move in cycles so investors should never build a strategy on the hope that rates will fall, however, if lending rates normalise over time, the weekly holding costs can reduce significantly,” he said.
The third step is evaluating the opportunity, which Mr Senior said is where investors are most easily misled.
“People jump straight to the suburb or the glossy brochure, but if the fundamentals aren’t there such as population growth, infrastructure and rental demand the property simply won’t perform,” he said.
Investment risk and uncertainty in the real estate housing market is real. iStock.
He said high-growth local government areas and growth corridors such as Ipswich, Logan and Moreton Bay in southeast Queensland, and Melton and Greater Geelong in Victoria, are examples of markets supported by strong population growth and infrastructure investment.
“These locations still need to be assessed property by property,” he said.
“Population growth alone does not make a good investment, but when strong population growth, infrastructure, affordability, rental demand and the right dwelling type come together, that is where new-build property can become a very powerful long-term strategy.”
Growth corridors such as Ipswich (pictured), Logan and Moreton Bay in southeast Queensland, and Melton and Greater Geelong in Victoria, are examples of markets supported by strong population growth and infrastructure investment. Picture: Nigel Hallett
The final step is scrutinising the who and what behind the property – that is, the builder, the contract, and the inclusions, he said.
“This is where the biggest risks sit in the new-build sector,” Mr Senior said. “You need to know the builder’s track record, their insurance limits, their pipeline of existing work and whether the contract is genuinely fixed-price and full-turnkey.
“If you don’t, you can end up with delays, cost blowouts, or a property missing basic essentials.”
Mr Senior said new builds can offer genuine affordability advantages, with modelling showing a $500-per-week difference in holding costs compared with established homes following the proposed changes to negative gearing and CGT.
But he warned that affordability does not equal suitability.
“New builds can be incredibly powerful, but only when they’re chosen through a structured process,” he said. “There is no magic bullet. There is only due diligence.”
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