Albo’s New Build Trap: Why Investors May Still Lose on Resale

The Albanese Government is telling Australians that its proposed changes to negative gearing and capital gains tax are about increasing housing supply.

That may be the sales pitch.

But for property investors, the real question is much simpler:

Will this make it easier or harder to make money when you sell?

Because anyone who has bought and sold property for long enough knows this simple rule:

You make your future profit on the day you buy.

Not because you magically know what the market will do.

Not because every property goes up.

But because a smart buyer thinks ahead and asks: who is going to buy this from me later?

The bigger the future buyer pool, the better your chance of making a strong profit.

The smaller the buyer pool, the more exposed you are.

And that is where these Budget changes may create a serious problem for investors.

What the Budget is proposing

From 1 July 2027, the Federal Government proposes to limit negative gearing for residential property investments to new builds. It also proposes to replace the current 50 per cent CGT discount with indexation and a 30 per cent minimum tax rate on capital gains.

The Government says existing arrangements will remain unchanged for properties held before Budget night, and that investors who buy new builds will still be able to deduct losses from other income.

That sounds attractive at first.

Buy a new build.

Keep negative gearing.

Possibly keep better CGT treatment.

Help increase housing stock.

Everyone wins, apparently.

But that is not the full story.

The benefit does not travel with the property

The critical issue is what happens when the first investor sells.

The Budget explainer says investors who buy new builds will continue to have access to negative gearing and will be able to choose between the 50 per cent CGT discount or the new CGT arrangements when they sell.

But the same Budget explainer also says a new build cannot generally have been previously sold, unless it was first owned by the builder and not occupied for more than 12 months. It then states that subsequent purchasers of the dwelling will not be able to access the 50 per cent CGT discount or negative gearing in relation to that property.

That is the trap.

The first investor may receive the benefit.

The second investor may not.

So when you go to sell, your property is no longer a “new build” for tax purposes.

It is just another established property.

That means the next investor may look at your property and say:

“Why would I buy your second-hand townhouse, apartment or investment unit when I can buy a qualifying new build and get better tax treatment?”

That is not a small issue.

That goes directly to resale value.

The future buyer pool may shrink

Most people think about property investment from the point of view of purchase price, rent, interest rates and tax deductions.

That matters.

But resale matters more.

When you buy a property, you should already be thinking about your exit buyer.

Will the next buyer be an owner-occupier?

Will it appeal to first-home buyers?

Will downsizers want it?

Will investors compete for it?

Will lenders like it?

Will it still be desirable in 5, 10 or 15 years?

The wider that future market is, the stronger your position is likely to be.

But if the Government swats investors away from established properties, then every property that was once a new build eventually becomes a second-hand property with a weaker investor tax profile.

That may reduce competition when you sell.

And lower competition usually means lower pressure on price.

This could hurt the very investors being pushed into new builds

The Budget is trying to push investors into newly constructed housing.

But the investment logic may not be as strong as it first appears.

A new build investor may get tax benefits during ownership.

But when that investor sells, the next investor may not get those same benefits.

That could make the resale property less attractive to investors.

So the first buyer may be paying a premium for a tax-friendly new build, only to later sell into a weaker second-hand investment market.

That is not increasing wealth for mum-and-dad investors.

That is shifting risk onto them.

The Government gets to say it is encouraging housing supply.

The investor gets to carry the risk.

And when resale time comes, the investor may discover that the future buyer pool has been narrowed by the very policy that encouraged them to buy in the first place.

New builds are not automatically good investments

Some new builds will still be good investments.

A well-located townhouse, a quality apartment in a tightly held area, or a new home in a strong owner-occupier market may still perform well.

But a tax benefit does not turn a weak property into a strong one.

A new build in the wrong location, with poor design, high owners corporation fees, too much competing stock, or limited owner-occupier appeal may still be a poor investment.

The Budget rules do not change that.

In fact, they may make the buyer’s due diligence even more important.

Because if the future investor market is weakened, then the property needs to stand on its own as a home someone actually wants to live in.

That means location, land content, build quality, transport, schools, amenity, layout, owners corporation structure and future resale appeal matter more than ever.

The real question investors should ask

Before buying any post-Budget new build investment, ask yourself this:

When I sell this property, who is my buyer?

If the answer is “another investor who wants the same tax benefits I received”, that may be a problem.

Because that next investor may not receive those benefits.

If the answer is “an owner-occupier who will love the property regardless of the tax rules”, then the investment may be much stronger.

That is the difference.

Tax rules can help cash flow.

But future profit depends on demand.

And demand depends on how many people want to buy what you are selling.

The bottom line

This Budget is being sold as a housing supply solution.

But from an investor’s point of view, it may also be another way of taking money out of your pocket while telling you it is for your own good.

The Government is trying to move investors away from established housing and into new builds.

But once that new build is sold, it becomes established housing.

And if the next investor does not get the same tax treatment, the resale buyer pool may be smaller.

That means even new-build investors may end up exposed.

The lesson is simple:

Do not buy a property just because the tax rules look attractive today.

Buy a property because it will still have a strong future buyer pool tomorrow.

At Victorian Property Settlements, we look closely at the contract, the Section 32 Vendor Statement and the practical risks that can affect your purchase before you sign.

Visit: www.victorianpropertysettlements.com.au

Source note: These Budget measures are proposed changes and should be watched carefully as legislation, transitional provisions and ATO guidance are released.