Understanding the basics of Off-the-Plan Loans

Buying an off-the-plan investment property in Auchenflower now comes with tax rules that weren't in place a year ago.

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent in June, changes how negative gearing and capital gains are treated for residential investment properties purchased after May this year. The legislation introduces a split between properties classified as eligible new builds and those that aren't. For investors considering off-the-plan apartments near the Wesley Hospital or townhouses backing onto the Brisbane River corridor, the classification matters because it determines whether you can offset rental losses against your salary and which capital gains treatment applies when you sell.

Off-the-plan purchases in Auchenflower typically involve deposits of 10 per cent paid on exchange, with settlement occurring 18 to 24 months later once the development is complete. During that period, interest rates can shift, your income can change, and lender appetite for the postcode can tighten. Most lenders will pre-approve finance based on your current circumstances, but that approval expires before settlement. When you reapply closer to completion, the lender reassesses your borrowing capacity and revalues the property. If the completed apartment is valued below the contract price, you may need to find the shortfall in cash or renegotiate the contract.

What Qualifies as an Eligible New Build Under the New Rules

An eligible new residential dwelling is one constructed on previously vacant land or one that replaces existing properties where the number of dwellings increases. A knock-down rebuild that delivers the same number of dwellings does not qualify. Most off-the-plan apartments and townhouse developments in Auchenflower meet the definition because they replace older houses or commercial buildings with multiple new dwellings.

The classification is permanent if you buy directly from the developer as the first owner. If a new build is occupied for more than 12 months before you purchase it as a subsequent investor, it loses its eligible status and you are subject to the quarantined loss rules. Developers and conveyancers should provide written confirmation of the dwelling's status at settlement, but it's worth requesting that document before exchange so there's no ambiguity later.

How Negative Gearing Changes From July 2027

From 1 July 2027, rental losses on residential investment properties purchased after 12 May 2026 can only be offset against other residential rental income or carried forward. They cannot be offset against wages or business income. Eligible new builds are exempt from this quarantine, which means rental losses can still be offset against salary under the existing rules.

Consider an investor purchasing a two-bedroom apartment off-the-plan in Auchenflower in late 2026, settling in mid-2028. The property qualifies as an eligible new build. If the annual interest on the investment loan is $28,000, body corporate fees are $6,000, and net rental income is $26,000, the investor has a $8,000 loss. Because the property is an eligible new build, that loss can be offset against their taxable salary, reducing their tax by approximately $3,200 at a marginal rate of 39 per cent including the Medicare levy. Without the exemption, that loss would be quarantined and could only reduce future rental profit or capital gains on residential property.

Investors purchasing developments that do not increase dwelling numbers, such as a knock-down rebuild of a single house replaced by a single new house, will be subject to the quarantine regardless of when construction occurred.

Capital Gains Treatment for New Build Investment Properties

From 1 July 2027, the 50 per cent capital gains discount for individuals is replaced with cost base indexation and a minimum 30 per cent tax rate on real gains, but only for gains accruing after that date. For eligible new build residential properties, you can elect to use either the 50 per cent discount or the indexed cost base with the minimum rate.

Gains that accrued before 1 July 2027 continue under the current 50 per cent discount rules. If you exchange contracts in 2026 and settle in 2028, your acquisition date for CGT purposes is the exchange date, so the entire gain when you eventually sell is eligible for the 50 per cent discount under the grandfathering provisions.

The election between discount and indexation is made when you dispose of the property, so you can choose whichever method produces the lower tax. Indexation is more favourable in high-inflation environments where most of your gain is inflation rather than real appreciation.

Deposit and Borrowing Capacity for Off-the-Plan Settlements

Lenders typically require a 10 per cent deposit for investment properties, though some will lend at higher loan-to-value ratios with Lenders Mortgage Insurance. The deposit is usually paid in stages: 10 per cent on exchange, with the balance due at settlement.

Borrowing capacity is assessed twice. First, when you apply for pre-approval after signing the contract. Second, when you submit a full application three to six months before settlement. APRA's serviceability buffer requires lenders to assess your ability to service the loan at a rate 3 percentage points above the actual product rate. If you're applying for a variable rate loan at 6.2 per cent, the lender tests whether you can afford repayments at 9.2 per cent.

The debt-to-income cap, introduced in February 2026, limits the share of investor loans a lender can write at six times your gross income or above. If your taxable income is $120,000 and you're borrowing $750,000, your DTI is 6.25. The lender can still approve the loan, but it counts toward their 20 per cent cap. In a scenario where the lender has already reached their quarterly limit, they may decline the application or offer a smaller loan amount even if you meet all other criteria.

Off-the-plan purchases for newly erected dwellings are exempt from the DTI cap. A newly erected dwelling is defined as a residential premises that have not previously been sold as residential premises other than as part of a primary production business, or residential premises that have been created through substantial renovations to a building. Most off-the-plan apartments qualify, which means the DTI cap does not apply and the lender's only constraint is your serviceability at the buffered rate.

How Valuations Affect Settlement and Loan Approval

Lenders order an independent valuation when you submit your full loan application before settlement. The valuer inspects the completed property and compares it to recent sales of similar dwellings in Auchenflower and surrounding suburbs such as Toowong and Paddington.

If the valuation comes in below your contract price, the lender will only provide a loan based on the lower figure. If you agreed to pay $650,000 and the valuation is $620,000, the lender calculates the loan on $620,000. At 90 per cent LVR, that's a loan of $558,000. You paid a $65,000 deposit, so you need $92,000 at settlement: $30,000 to cover the valuation shortfall, plus the remaining $62,000 balance. Buyers who assumed they only needed the deposit often find themselves scrambling for the extra cash or seeking top-up finance at higher rates.

Valuation shortfalls are more common in precincts with high levels of off-the-plan supply. Auchenflower's proximity to the University of Queensland, the Wesley Hospital, and the future Queensland Children's Hospital site keeps demand consistent, but if multiple developments settle simultaneously, valuers may apply a discount for oversupply risk.

Structuring Loan Repayments and Rate Types for Rental Properties

Most investors choose interest-only repayments to maximise cash flow and keep more of the deductible interest expense. Interest-only periods typically run for five years, after which the loan reverts to principal and interest unless you request an extension. Lenders are more willing to extend interest-only terms if your loan-to-value ratio is below 80 per cent and the property has a strong rental history.

You can select a variable rate, a fixed rate, or split the loan between both. A variable rate lets you make extra repayments and access offset accounts, which can reduce the interest you pay if you hold surplus cash. A fixed rate locks in your repayment amount for one to five years, which helps with budgeting and protects you if rates rise, but you lose flexibility and may incur break costs if you repay early or refinance before the fixed term ends.

Rental income is assessed by lenders at 80 per cent of the market rent to account for vacancy and maintenance periods. If the property rents for $650 per week, the lender includes $540 per week in your serviceability calculation. You still receive the full rent, but the lender builds in a buffer so that a short vacancy doesn't immediately put you in arrears.

What Documents and Approvals You Need Before Settlement

Lenders require a copy of the signed contract of sale, the developer's finance clause (if any), and a construction timeline. Most contracts include a sunset clause that allows either party to terminate if construction is not complete by a specified date. Lenders want to see that the sunset date gives them enough time to process your application and settle without rushing.

You'll also need to provide recent payslips, tax returns, and statements for all accounts showing your deposit savings and any other funds you plan to use at settlement. If you're using equity from another property as part of your deposit, the lender will require a valuation of that property and details of the existing loan.

Foreign investors face additional restrictions. The Foreign Acquisitions and Takeovers Act prohibits foreign persons, including temporary residents, from purchasing established dwellings until 30 June 2029, but new dwellings are still permitted. Off-the-plan purchases qualify as new dwellings provided the buyer is the first to occupy or rent the property after construction. Foreign investors must apply to the ATO for approval before exchanging contracts and pay an application fee, which has tripled since April 2025.

Tax Deductions and Ongoing Costs to Include in Your Budget

Interest on the investment loan is deductible in the financial year it's incurred, provided the property is rented or available for rent. Body corporate fees, council rates, water charges, property management fees, landlord insurance, and repairs are also deductible. Depreciation on the building and fixtures provides a non-cash deduction that reduces your taxable income without requiring any outlay.

Stamp duty on the purchase is not deductible. It forms part of your cost base for capital gains purposes, so it reduces your taxable gain when you sell. Loan establishment fees and ongoing loan account fees are deductible in the year they're charged.

Owners of eligible new builds continue to access negative gearing in full from July 2027. Owners of other residential investment properties will need to carry rental losses forward and apply them against future residential rental income or capital gains. The distinction means that budgeting for an off-the-plan purchase now requires clarity on whether the development qualifies and how that affects your after-tax return.

Off-the-plan finance moves through several stages, and the structure you choose at the start affects what happens at settlement and beyond. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions