Avoid These 5 Mistakes Buying Off-the-Plan Investment

Off-the-plan investment property can still deliver strong tax benefits and portfolio growth if you understand the legislation that changed in mid-2026.

If you purchased an off-the-plan apartment before 7:30pm on 12 May 2026, or if you buy a qualifying new build after that date, you can still fully deduct interest and holding costs against your income. But if you signed up for an established property after that date, those deductions are now quarantined to offset rental and capital gains income from residential property only. The timing of your contract, not your settlement, determines which rules apply.

Off-the-Plan Properties Qualify as New Builds

An off-the-plan purchase qualifies as a new build if the dwelling is constructed on previously vacant land or replaces an existing property in a way that increases the total number of dwellings on the site. A knock-down rebuild that produces the same number of dwellings does not qualify. Once a new build has been occupied for more than 12 months before being sold to another investor, it loses its status and the next buyer cannot claim full negative gearing.

Consider a GP who contracts in November 2026 to buy an off-the-plan apartment in a new development. The property settles in late 2027. Because it is a new build purchased under contract after 12 May 2026, the buyer can deduct interest, body corporate fees, council rates and other holding costs against all income from the 2027-28 financial year onward, even if rental income does not cover those costs. That deduction remains available for as long as the GP holds the property. When the property is eventually sold, the investor can choose between the pre-1 July 2027 capital gains discount and the post-1 July 2027 indexed cost base with a 30 per cent minimum tax rate, selecting whichever delivers the lower tax bill.

Mistake 1: Failing to Confirm Development Approval Before Exchange

Developers market off-the-plan stock before construction begins, and in some cases before development approval has been granted. If approval is delayed or refused, the project may not proceed on the terms you expected, or at all. Lenders will not release funds at settlement unless the property has been built and titled.

Review the contract to confirm whether development approval has been issued, whether any conditions remain outstanding, and whether the sunset clause gives the developer the right to extend or rescind the contract if approvals are delayed. Your solicitor should verify the status of the approval with the local council before you exchange contracts. If approval has not yet been granted, ask the developer for a copy of the application and consider whether you are comfortable with the delay risk. In our experience, doctors with high income and limited time to manage disputes benefit from contracting on projects where approvals are already in place and construction is underway.

Mistake 2: Underestimating How the Deposit Structure Affects Serviceability

Most off-the-plan contracts require a deposit of 10 per cent, paid in stages. A typical structure is 5 per cent on exchange, another 5 per cent within 90 days, and settlement 18 to 24 months later. Because settlement occurs well after exchange, your financial position at settlement may differ significantly from your position at exchange, and lenders assess your borrowing capacity at the time of settlement, not at the time you sign the contract.

If you take on additional debt between exchange and settlement, such as upgrading your home or buying a vehicle, your maximum investment loan amount may fall. Lenders apply a serviceability buffer of at least 3 percentage points above the loan product rate and, from February 2026, are also limited in how much they can lend to borrowers with a debt-to-income ratio of six times or more. If your income has not increased and your other debts have, you may no longer meet the lender's criteria when you apply for final approval, even if you were pre-approved at exchange. Keep your debt position stable between exchange and settlement, and lodge your formal loan application at least 90 days before the expected settlement date so any issues can be resolved in time.

Mistake 3: Assuming the Valuation Will Match the Contract Price

Lenders order an independent valuation at settlement, and if the valuation comes in below the contract price, the lender will calculate your loan-to-value ratio based on the lower figure. This increases your required deposit and may trigger Lenders Mortgage Insurance where it was not initially expected.

In a scenario like this, a cardiologist contracts to buy an off-the-plan unit for $650,000 with a 10 per cent deposit and plans to borrow $585,000 at 90 per cent LVR. At settlement, the valuation comes back at $610,000. The lender will now lend only 90 per cent of $610,000, which is $549,000. The buyer must find an additional $36,000 in cash or accept a higher LVR and pay LMI on the full amount. If the buyer cannot close the gap, the contract may fall through and the deposit may be forfeited. This outcome is more common in oversupplied precincts or where the developer has offered incentives that inflate the headline price. Before committing, research recent sales of comparable new apartments in the same suburb and compare them to the contract price. If the contract price sits well above recent comparable sales, factor in the risk that the valuation will fall short.

Mistake 4: Not Reviewing the Body Corporate Budget and Sinking Fund

Off-the-plan apartments are sold before the body corporate has any financial history. The budget provided by the developer is an estimate, and ongoing fees often rise once the building is completed and the body corporate takes control. Sinking fund contributions may also be insufficient if the builder has used lower-grade materials or if defects emerge after the defects liability period expires.

Request a copy of the proposed body corporate budget and compare the estimated quarterly fees to similar buildings in the same area that have been operating for at least two years. If the estimate looks low, assume the actual fees will be higher and factor that into your cash flow projections. Lenders include body corporate fees in their serviceability calculations, so an unexpectedly high fee can reduce your borrowing capacity at settlement or affect your ability to hold the property if rental income is lower than expected. Strata reports for established buildings are not available for off-the-plan stock, so you are relying on the developer's projections and your own due diligence.

The Capital Gains Tax Choice for New Builds Sold After 1 July 2027

If you buy an off-the-plan investment property that qualifies as a new build, you have a choice at the time of sale between the old capital gains discount and the new indexed cost base regime. Under the old rules, you receive a 50 per cent discount on the gain and pay tax at your marginal rate on the remaining half. Under the new rules, you index your cost base by CPI and pay tax on the real gain only, with a minimum rate of 30 per cent on the indexed gain if your effective rate would otherwise be lower.

The choice is made at the time you lodge your tax return for the year of sale, and it applies on an asset-by-asset basis. If your marginal tax rate is above 30 per cent and inflation has been low during your ownership period, the old discount may deliver a lower tax bill. If inflation has been high, indexation will reduce your taxable gain and the new rules may be more favourable. Investors who receive the Age Pension, Disability Support Pension or certain other government payments in the year of sale are exempt from the 30 per cent minimum rate, which can make indexation significantly more attractive. Your accountant will need to model both scenarios before you make the choice, so keep detailed records of your purchase costs, including stamp duty, legal fees and any capital improvements made after settlement.

Mistake 5: Ignoring the Risk That Settlement Is Delayed Beyond Your Financial Capacity

Construction delays are common, particularly where subcontractors experience supply chain disruptions or where the developer has underestimated the time required to complete defect rectification. If settlement is delayed by six months or more, your financial circumstances may change in ways that affect your ability to settle.

Most off-the-plan contracts include a sunset clause that allows either party to rescind the contract if settlement has not occurred by a specified date. Developers may use the sunset clause to walk away from the contract if property values have risen significantly since exchange, allowing them to re-sell the units at a higher price. Buyers can also use the sunset clause to exit if their circumstances have changed, but the deposit is usually forfeited. Before you exchange, confirm the sunset date and assess whether you can hold your financial position stable for that entire period. If you are planning to take parental leave, reduce your working hours, or retire during the construction period, discuss the timing with your broker before you commit. Lenders assess your income at settlement, not at exchange, so a reduction in income can prevent the loan from being approved even if you were pre-approved earlier. For doctors with variable income or planned career changes, it may be worth choosing a property that is already under construction and closer to completion, reducing the window in which your circumstances might shift.

Off-the-plan investment property offers access to new build tax benefits and modern stock in areas where established property is limited. The risks relate to timing, valuation and changes in your financial position during the construction period. Call one of our team or book an appointment at a time that works for you to discuss your investment loan options and confirm your borrowing capacity before you exchange contracts.

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