Investors cautioned against premium pricing as new housing tax incentives loom
By
Photo by K
In light of the federal government’s recent budget announcements, property investors are being urged to exercise caution when considering new builds, as the resale market for these properties could pose significant challenges. The Albanese government’s decision to limit negative gearing to newly built properties and alter the capital gains tax discount has sparked concerns among industry experts regarding the potential pitfalls for investors.
Anne Flaherty, a senior economist at realestate.com.au, drew parallels between the depreciation of new cars and new homes. “When you buy a new car, the moment you drive it out of the dealership it goes down in value, and with investor stock, that’s kind of the same boat we’re in,” she explained. This analogy underscores the inherent risk that a “new” property loses its allure—and potentially its value—once it transitions to the resale market.
The government’s budgetary changes are clearly aimed at incentivising investment in new housing, thereby boosting supply. However, Flaherty emphasised the importance of considering the long-term desirability of such properties. “A home is only new once, so an investor is going to want to buy something that is going to be desirable by an owner-occupier down the track,” she stated.
Melinda Jennison, a buyer’s agent and president of the Real Estate Buyers Agents Association of Australia, warned that the current climate might attract opportunistic property marketers. “The property spruikers are already out there advertising the fact that they’re selling brand new properties – with lots of hidden commissions built into them – and that they’re going to be the most tax-effective way to invest in property,” she said. Jennison cautioned that these new properties might not deliver the expected returns, as they often hold less intrinsic value compared to established homes.
“When you’re purchasing brand new, you’re paying a lot more for the dwelling itself rather than the land component, and it’s the land component that ultimately increases in value over time,” Jennison added. She advised investors to consider the resale potential, noting that once a property is no longer new, the market of potential buyers shrinks considerably.
Echoing these sentiments, Cate Bakos, president of the Property Investment Professionals of Australia, highlighted the financial implications of reselling. “The intrinsic value of that property only exists while the first buyer owns it. When you want to sell it, you’re selling a secondhand property that will not come with the same benefit for the next buyer, so you can’t expect to get the same price for it,” Bakos explained. Her advice to investors was clear: “Be mindful of what your value should be. Don’t pay a premium.”
Nerida Conisbee, the chief economist at Ray White, added another layer of complexity to the discussion, pointing out that the policy might inadvertently affect renters. “The intent is clear: reduce investor competition for existing homes and redirect capital into new housing. But while this may be politically neat, the housing market is more complicated,” Conisbee said. She argued that the shift in investor demand might not necessarily lead to more construction, particularly if concerns about resale value persist.
Conisbee further noted that the policy could push investor activity towards outer growth corridors, apartment precincts, and masterplanned communities, potentially leaving renters in established inner- and middle-ring suburbs with fewer options. In regional areas, where new developments are sparse, the limitation on negative gearing could exacerbate rental shortages.
“Limiting negative gearing to new builds may work better in markets where new housing is being delivered at scale,” Conisbee stated. “In regional areas where development is limited, it risks reducing rental availability without creating a realistic replacement source of supply.”
Furthermore, investors are advised to scrutinise the definition of a ‘new home’ as outlined in the budget papers. To qualify for tax benefits, new builds must genuinely add to housing supply, meaning developments must increase the number of dwellings. Simply adding a granny flat to an existing property does not meet this criterion. Investors in new apartment complexes are particularly urged to verify that the development increases the total number of dwellings to avoid potential tax complications.
As the real estate landscape adjusts to these policy changes, investors are encouraged to navigate the market carefully, ensuring that their investments align with both current incentives and future market realities.