New Build Properties Keep Full Negative Gearing After 2027: What Qualifies?

Introduction

The new build exception is the central policy lever in the 2026-27 Budget reform. The Government's stated objective is to redirect investor capital toward supply-adding construction rather than competition with owner-occupiers for the existing housing stock. To make this work, investors who finance new construction retain every existing tax concession — full negative gearing, plus the existing CGT discount rules until 1 July 2027 (transitioning to indexation post that date).

For an investor buying after 1 July 2027, the decision between an established property and a new build now has materially different tax consequences. Established property losses carry forward only; new build losses can be offset against wages immediately. Over a multi-year holding period, the cash flow difference is meaningful — particularly in the early years when interest deductions are highest.

Why the Government Carved Out New Builds

The policy logic is straightforward: investor demand for established housing competes directly with owner-occupier demand for the same stock. Investor demand for new construction, by contrast, adds to the housing supply, lowering the medium-term price pressure on the established market.

Treasury modelling supports this distinction. The reform is projected to add approximately 75,000 owner-occupiers to the housing market over the next decade (as some current investors shift to established properties for owner-occupation or as the relative price advantage of established stock improves) while preserving incentives for new construction supply.

What Counts as a New Build

A residential property qualifies as a "new build" for the negative gearing exception if it meets all of the following:

• It is newly constructed and has not previously been sold to a residential investor or owner-occupier; or it has been first owned by the builder/developer and not occupied for more than 12 months before sale to the first investor; and
• The investor is the first owner of the property as a residential dwelling (excluding the builder/developer's holding period); and
• The property has been occupied for no more than 12 months before sale.

The categories that clearly qualify:

• Off-the-plan apartments. Standard new apartment purchases from the developer. The first investor to take title qualifies.
• House-and-land packages. Where the investor purchases vacant land and contracts construction, or buys the completed dwelling directly from the builder.
• Knockdown-rebuild that increases dwellings. Replacing a single dwelling with a duplex, triplex, or multi-unit development qualifies because dwelling count rises (see the supply increase test below).
• Townhouses in new developments. First-investor purchases of new townhouses from the developer.
• Built-to-rent first sales. Where a build-to-rent operator sells individual units to investors (subject to the 12-month occupation test).

What Does Not Qualify

The exclusions are equally important — investors who assume their purchase qualifies but in fact does not will face full application of the new rules.

• Established houses. Any property previously owned by an end-user (owner-occupier or another investor) does not qualify, regardless of age or condition.
• Knockdown-rebuild that does not increase dwelling count. Replacing a single house with a single (larger) house does not qualify — the supply test is not met.
• Granny flats on existing non-qualifying property. Adding a secondary dwelling to a property that does not itself qualify does not create a new build for negative gearing purposes.
• Second-hand purchases of new builds. If you buy a "new" apartment from another investor (not the developer), you lose the new build status entirely — see the next section.
• Properties occupied more than 12 months. Even if newly constructed, if the property has been occupied for more than 12 months before you buy it, it is treated as established.

The First Owner Rule

This is the most commercially significant feature of the new build exception. Only the first investor owner of a qualifying property gets the negative gearing concession. Subsequent buyers — even of brand-new properties just months after settlement — do not qualify.

Worked example

David buys an off-the-plan apartment from a developer in August 2027 for $620,000. The apartment is brand new — David is the first owner. David qualifies for full negative gearing. Six months later David receives a job transfer overseas and lists the apartment for sale. Emma buys it from David in March 2028 for $635,000.

Even though the apartment is less than a year old when Emma buys it, Emma is a subsequent purchaser. She does not qualify as a new build owner. Her negative gearing rights are restricted, and her future capital gain will be subject to CPI indexation + 30% minimum tax (with no transitional 50% discount on the brief period before the rules took effect).

The pricing implication: Emma is buying a property with materially worse after-tax economics than David enjoyed. Rational pricing should reflect this difference. Industry analysts expect secondary-market new builds to trade at a discount to comparable first-sale properties over time.

The 12-Month Occupation Test

To prevent gaming of the new build status — for instance, a developer holding a unit for tax purposes for an extended period before selling it as "new" — the rules impose a 12-month occupation cap. If the property has been occupied (whether by the builder, a tenant, or anyone else) for more than 12 months before the first investor sale, it loses new build status.

The 12-month clock starts when the property is first capable of being occupied (typically the certificate of occupancy date) and stops at the date of contract with the first investor. Brief or intermittent occupation (e.g. a marketing display suite for a few weeks) within the 12-month window does not break the status — only sustained occupation as a residence does.

The Supply Increase Test for KDR

Knockdown-rebuild projects are one of the more contested aspects of the new build rules. The principle is clear: a KDR project qualifies as a new build only if it increases the dwelling count on the site. The test is applied at the site level: how many dwellings exist before, how many after.

• Single dwelling → duplex: qualifies (1 → 2)
• Single dwelling → triplex: qualifies (1 → 3)
• Single dwelling → larger single dwelling: does NOT qualify (1 → 1)
• Duplex → triplex: qualifies (2 → 3)
• Apartment building → larger apartment building: qualifies if dwelling count rises

For full analysis of KDR projects under the new rules, see knockdown-rebuild rules in detail.

Strategic Implications

The new build exception fundamentally changes the comparative economics of investment property choices made on or after 1 July 2027. Three strategic implications stand out:

1. New builds become structurally cheaper to hold

For an investor on the 37% marginal rate with a $14,810 average negative gearing loss (the ATO national average), the immediate tax benefit on a new build is approximately $5,480 per year. For the same loss on an established property, the benefit is deferred (carry-forward only). Cash flow advantage to new build over the early holding years can be significant.

2. Off-the-plan secondary market will reprice

Apartments resold within months or a few years of completion will trade at a noticeable discount to the original developer price, reflecting the loss of new build status to subsequent buyers. Investors planning to hold longer term retain their concessions; those planning a quick flip will face buyer pushback on price.

3. Knockdown-rebuild projects favour supply-adding designs

Investors considering KDR projects will have a strong tax-driven preference for dwelling-multiplying designs (duplexes, triplexes) over single-house rebuilds. This aligns the tax system with the Government's supply objectives — the explicit policy intent.

See off-the-plan apartments under the new rules for further investor analysis.