New Builds Tax Breaks May Leave Investors $600k Worse Off
· news
The New Build Trap: A Tax Dodge or a Wealth Killer?
The Australian government’s latest budget measures have sent shockwaves through the property market. One of the most significant changes is the abolition of negative gearing for existing properties, with new builds being the sole exception. This has investors scrambling to adapt.
Research by Get Rare Properties suggests that investors who opt for new builds could be leaving a whopping $592,000 on the table over 20 years. At first glance, tax breaks for new builds seem attractive, but scratch beneath the surface and you’ll find that the numbers just don’t add up.
According to Rasti Vaibhav, founder of Get Rare Properties, the tax benefits of a new build are more than offset by its lower capital growth rates. Established properties outperform new builds by a significant margin – even after taking into account depreciation and negative gearing. Vaibhav’s analysis shows that this disparity is largely due to location.
New builds often sprout up on the city fringes, where land is cheaper but demand is lower. As a result, these properties tend to underperform compared to established homes in prime locations. Kane Dury, principal of Discover Buyers Agency, says bluntly: “Tax benefits and depreciation aren’t going to fix that.” He’s right – a property with poor location prospects will always be a less attractive investment than one in a sought-after area.
Another issue with new builds is the oversupply problem. Developers often build in areas where there’s already an abundance of properties, making it harder to sell when the time comes to get out. As Dury points out, “You want more land and less house” – not the other way around. This problem is exacerbated by investors flocking to new builds under the guise of tax breaks.
Vaibhav warns that it’s all too easy to get caught up in tax minimisation at the expense of long-term wealth creation. He advises: “You always want less risk and better returns, not every market is good.” The reality is, investors need to focus on building genuine wealth – not just saving on their tax bill.
For property investors, this means reassessing their investment strategies. Rather than chasing new builds and tax breaks, they should be focusing on sound, location-driven investments that will deliver strong capital growth over the long term. Vaibhav recommends buying established property in good locations, close to job hubs and shopping centres – where people want to live.
This approach may not save you on tax immediately, but it’s a far more reliable way to build wealth for the future. As investors move forward into this new landscape, one thing is clear: sound investment judgement will always trump tax minimisation as the key to long-term wealth creation.
Reader Views
- RJReporter J. Avery · staff reporter
The new build tax break has investors scrambling for a quick fix, but are they playing with fire? While the article highlights the lower capital growth rates of new builds, what's often overlooked is the impact on tenants. As developers flood the market with new stock, rental yields take a hit, leaving landlords to foot the bill for cheaper rents and higher vacancy rates. Will investors really be saving money in the long run if their properties are sitting vacant?
- CMColumnist M. Reid · opinion columnist
It's time to separate hype from reality in the new build market. While tax breaks may be enticing for investors, the data suggests they're often chasing yesterday's dream. Established properties with prime locations consistently outperform new builds over the long term, making them a safer bet despite initial depreciation costs. What's more concerning is the oversupply issue: when developers build too much in areas already saturated with housing stock, it can be a recipe for disaster.
- CSCorrespondent S. Tan · field correspondent
The rush to new builds is based on flawed assumptions about tax benefits and capital growth. But what about the hidden costs of maintenance and upgrade requirements for these newer properties? Investors often underestimate the long-term expenses associated with newer buildings, which can eat into potential returns. A more nuanced approach would consider not just the initial savings but also the ongoing financial obligations that come with owning a newer property.