Negative Gearing Changes: Why New Builds Are Now the Only Exception

Can you still negatively gear a new build?

Yes, and right now it is the only residential property you can. 

This is the part of the Budget changes that has been underreported, and it changes the calculation for a lot of investors. 

From 1 July 2027, negative gearing on residential property will be limited to newly constructed dwellings. For established residential property purchased after 7:30pm AEST on 12 May 2026, rental losses can no longer be offset against salary or other income. Those losses can only reduce income from other residential property, or be carried forward. 

None of that applies to newly constructed dwellings, which retain negative gearing in full. Losses can still be offset against other income, including salary, exactly as before. Investors in new residential property can also choose between the old 50% CGT discount method and the new indexation approach. This means that when it comes to residential property, newly constructed dwellings are now the only holding that retains full negative gearing benefits. 

Properties held before Budget night, including those under contract, are grandfathered and continue under the existing rules until sold. 

The market is already anticipating this. Investors accounted for 40.3% of all new lending in the March quarter, the highest share since September 2016, and Cotality expects that number to fall in coming quarters as the Budget changes take effect. For Sydney investors in particular, where established stock dominates most inner and middle-ring suburbs, this reshapes what a viable acquisition looks like. 

Buying off the plan?

The tax treatment is only part of the picture. An off the plan purchase involves committing to a price today and settling well into the future, which means the questions worth asking are about what the market and your own position might look like at settlement, not just what they look like now. 

Valuation at settlement. If the completed valuation lands below contract price, you cover the gap in cash. Conditions vary considerably between markets and can shift within a quarter, so what matters is having a current read on the specific market you are buying into rather than a general sense of where things are heading. 

Serviceability at settlement. Your loan is assessed at settlement, not at exchange. Rate movements, lender policy changes and any change to your income between now and then all affect whether you can complete. Modelling this properly, on assumptions that hold up if conditions move against you, is the single most useful thing you can do before signing. 

Developer track record and funding. Apartment supply is under real pressure at the moment, with construction costs making some projects difficult to finance and get off the ground. A well capitalised developer with a delivery history is a materially different risk to one without. Read our Developer Finance blog here.

Sunset clauses. Understand the date and what happens if the developer does not meet it. 

What is actually included. Finishes, inclusions and substitution clauses in the contract deserve legal review before you sign, not after. 

None of this makes off the plan a bad decision. It makes it a decision that needs current, thorough analysis rather than a general rule of thumb. We work through all of this as part of assessing an off the plan purchase, drawing on where the market actually sits at the time you are buying, so you can see clearly where the risks are before you commit. 

What is a deposit bond and how does it work?

For off the plan purchases with a long settlement, a deposit bond is worth understanding and, in our opinion, using. As long as the developer accepts it.

A deposit bond is a guarantee issued to the vendor in place of a cash deposit. Rather than tying up 10% of the purchase price for 18 months or more, you pay a fee for the bond, and the vendor holds the guarantee until settlement. At settlement you pay the full purchase price as normal. 

What that means in practice: your cash stays in your offset account reducing interest on existing debt, or stays available for another opportunity, instead of sitting idle in a solicitor's trust account. With variable rates above 6%, the value of keeping cash in an offset has gone up. 

Points to be clear on: 

• A deposit bond is a guarantee, not finance. You still have to settle. 

• If you fail to settle, the bond is called on and the provider recovers that amount from you. 

• The vendor must agree to accept a bond. Not all do, and the contract needs to permit it. 

• Fees vary with the bond value and the term, so a three year bond costs more than a six month one. 

• Eligibility is assessed. You need to demonstrate you can settle. 

  
  

Used well, on the right purchase, a deposit bond is a straightforward cashflow tool. Used on a purchase you were never certain you could settle, it is a liability. 

What the market is actually doing

National dwelling values fell 0.7% over the three months to June. That is the largest rolling three-month decline since January 2023, and annual growth has decelerated to 7.3%. 

Auction clearance rates tell the same story faster. After peaking around 66% in early February, the combined capital city four-week average fell below 60% in mid-March and reached the low 40s by June, driven largely by Sydney and Melbourne, which dominate the national auction figures. Vendors have noticed. Auctions accounted for almost 45% of new listings in November, and just over 30% in June, as more sellers move to private treaty rather than risk a public result. 

The rest of the data points the same way. 

• Median vendor discount across the combined capitals rose to 3.6%, up from 3.0% in the March quarter 

• Median days on market nationally has risen to 32 days, up from 30 a year ago 

• Total advertised stock across the capitals sits 15.9% above year-ago levels 

• Sydney values fell 3.2% over the quarter, Melbourne 2.6% 

• Regional markets rose 1.1% over the quarter against a 1.3% fall across the combined capitals 

• Perth, Brisbane, Adelaide and Darwin are all still at record highs 

The spread between the strongest and weakest markets remains extreme. Perth is up 23.9% over the year and Darwin 19.8%, while Melbourne has gone backwards at negative 0.9% and Sydney has managed 0.3%. There is no single Australian property market right now, and any strategy built on a national average is built on a number that describes nowhere. 

For buyers, this is the most negotiating room in over a year. Discounting is rising, stock is building, and vendors are meeting the market. That window does not stay open indefinitely. 

How to review your property portfolio

If you own more than one property, mid year is the right time to review your structure. Not because something is wrong, but because the settings that made sense at your last purchase may no longer match the environment. 

Five things worth checking: 

Your rate against the current market. The RBA held at 4.35% in June after three consecutive hikes, 75 basis points through the first half of the year. Lenders have not passed those through uniformly, and some have quietly added margin. Your rate may be further off market than you think. Read our Repricing & Optimisation blog here.

Your LVR, and which direction it has moved. If you hold in Perth, Brisbane, Adelaide or Darwin, your equity position has likely improved and a revaluation could drop you into a better pricing bracket. If you hold in Sydney, Melbourne or Canberra, the opposite may now be true. Values have fallen and a revaluation could work against you. Knowing which situation you are in before you approach a lender is the point of the exercise. 

Your lender concentration. If three or four properties sit with one lender, you have one point of failure. When that lender reaches its exposure limit or tightens policy, your next purchase stalls. Spreading across two or three lenders with different credit appetites keeps the path open. Read our Investor Growth blog here.

Your interest only expiry dates. Interest-only loans have risen to 21.7% of new originations and are still climbing. Rolling from interest only to principal and interest without planning for it is one of the more common cashflow shocks we see, and it lands harder when variable rates are above 6%. Know your dates. 

Your fixed rate expiry. When a fixed term ends and rolls to variable, lenders apply standard variable pricing, which is rarely their best offer. Fixed rate pricing has moved considerably this year and long-term fixed is no longer the cheaper option it once was, so what to do at rollover needs fresh analysis rather than a default. The weeks before expiry are the point of maximum leverage. Start that conversation early. 

When is the right time to refinance an investment property?

Two things are converging.

The first is rate pricing. Rates are rising across every category and lenders are still competing hard for quality borrowers. The spread between what new customers are offered and what existing customers pay has widened. That spread is money. 

The second is policy. From 1 July 2027, the 50% capital gains tax discount for individuals, trusts and partnerships will be replaced with cost base indexation and a 30% minimum tax on net capital gains. Gains accrued before that date keep the existing discount. Apportionment methods are still to be finalised. 

For anyone weighing up whether to hold, sell, restructure or buy, the sequencing of those decisions now carries tax consequences it did not carry twelve months ago. Refinancing is often the first move that makes the others possible, because it determines what capacity you have to work with. Getting that assessed early gives you options. Leaving it until you need to act does not. 

Where to start

If it has been more than 12 months since anyone looked properly at your portfolio, that is the starting point. Not because a change is needed, but because you cannot make good decisions about the next purchase without an accurate picture of the current one. 

Complex briefs are what we do. Trusts, multiple entities, SMSF commercial, portfolios spread across lenders with competing policies, self employed income that does not fit a template. That is the work we have built this business on for close to four decades, and it is usually where the largest gains are sitting. Read our Business Owners blog here.

If your position is already well structured, we will tell you that. If there is an opportunity worth acting on, we will show you exactly what it is worth. 

Frequently Asked Questions

When do the negative gearing changes take effect? 

The restrictions commence 1 July 2027. However, the trigger date for established residential property is 7:30pm AEST on 12 May 2026, which was Budget night. Properties purchased after that date fall under the new rules once they commence. 

Are existing investment properties grandfathered? 

Yes. Properties held before Budget night, including those under contract at that time, continue under the existing negative gearing rules until they are sold. 

Can I still negatively gear a newly built property? 

Yes. Newly constructed residential dwellings retain full negative gearing. Rental losses can still be offset against other income, including salary. Investors in new residential property can also choose between the existing 50% CGT discount and the new indexation method. 

Do I have to pay a cash deposit when buying off the plan? 

Not always. A deposit bond can be used in place of a cash deposit, subject to the vendor agreeing and the contract permitting it. The bond is a guarantee rather than finance, so you still need to settle in full at completion. 

What is changing with capital gains tax? 

From 1 July 2027, the 50% CGT discount for individuals, trusts and partnerships is replaced with cost base indexation and a 30% minimum tax on net capital gains. Gains accrued before that date keep the existing discount. Main residences and pre CGT assets remain exempt. 

The AAA Mortgages team is an established brokerage working with investors, business owners and professionals across Australia and nationally on residential, commercial and complex lending for nearly 40 years. With access to over 60 bank and non-bank lenders, we can assess your position and map out what is achievable from here. 

📩 advise@aaamortgages.com.au 📞 02 9299 1144 🌐 aaamortgages.com.au 

Important note: This is general information only, not personal financial, tax or legal advice. 

Market figures are drawn from the Cotality Monthly Housing Chart Pack (July 2026), reflecting data to June and mid-July 2026. All other figures are illustrative only and will vary depending on loan balance, rate, loan type and individual circumstances. Tax outcomes depend on your specific position and should be confirmed with your accountant.