Does Buying an Existing Property for Investment Still Make Sense After the Budget Changes?
Recent Budget changes may make newly built investment properties more attractive from a tax perspective. But does that automatically mean buying new is the better investment?
Not necessarily.
Buying a house-and-land package, or purchasing land and constructing a property, can come with some practical challenges that investors should consider:
1️⃣ Construction cost increases
Building costs can rise during the project, potentially pushing the final cost above your original budget.
2️⃣ Construction delays
Council approvals, labour shortages, material availability and other delays can extend the completion timeframe and increase holding costs.
3️⃣ Builder risk
Financial difficulties or insolvency of a builder can create significant delays, additional costs and uncertainty.
4️⃣ Interest costs during construction
You may be paying interest while the property is being built but receiving no rental income. At higher interest rates, this can have a meaningful impact on cash flow.
5️⃣ More involvement and complexity
Depending on the project, managing construction, progress payments, variations and other issues can require considerably more time and attention.
6️⃣ Impact on future borrowing capacity
During construction, you have additional debt without the benefit of a completed property's rental income. This may affect borrowing capacity if you want to make another investment.
7️⃣ Negative gearing changes need to be understood carefully
Changes to the timing or availability of deductions can affect investment cash flow and after-tax returns. The important question isn't simply whether a deduction exists — it's when and how you can benefit from it.
8️⃣ Tax rules can change over a long investment horizon
Property is generally a long-term investment. Current concessions, including CGT treatment, should be considered as part of the overall strategy, but investors should avoid making a long-term investment decision based solely on today's tax settings.
💡 So, does an existing property still make sense?
Absolutely, it can.
An established property can offer greater certainty around the purchase price, location, property condition, rental potential and timing of rental income. You can see what you're buying and potentially start generating rent shortly after settlement.
It's buying the right property, in the right location, at the right price, with appropriate consideration of cash flow, borrowing capacity and long-term growth potential.
A good Buyer's Agent can help identify and assess properties against those objectives rather than choosing a property simply because it is new or comes with a particular tax benefit.
Get in touch if you'd like to discuss your property-buying options.
Disclaimer: General information only. This is not financial, investment, taxation, credit or legal advice. Consider your individual circumstances, conduct your own due diligence and obtain appropriate professional advice before making an investment decision.