Off-the-Plan Apartments and the 2027 Tax Rules: The Investor's Complete Guide

Introduction

Off-the-plan apartments units purchased from a developer before completion have always been a distinct segment of the residential investment market. The 2026-27 Budget reform sharpens this distinction: off-the-plan purchases qualify as new builds, retaining full tax concessions, while subsequent purchases of the same units lose those concessions.

For first-investor purchasers, off-the-plan now offers a clear tax advantage over established stock acquired after 12 May 2026. For subsequent buyers in the secondary market, off-the-plan resales become structurally less attractive. The result is a meaningful pricing divergence between the primary and secondary markets that has not previously existed.

Off-the-Plan as a New Build

An off-the-plan apartment qualifies as a new build for negative gearing purposes if the investor is the first owner and the unit has not been occupied for more than 12 months before sale. Standard off-the-plan contracts from a developer comfortably meet this test:

• The investor is the first owner (the developer's holding period is excluded from the test).
• Settlement typically occurs at or near completion well within the 12-month occupation cap.
• The property has not been previously sold to an end-user.

First Buyer vs Subsequent Buyer

This is the critical commercial feature. The new build concession attaches only to the first investor owner. A subsequent buyer of the same unit even months after the original investor takes title is treated as buying established property:

• Loss of negative gearing against wages (post-1 July 2027 acquisitions)
• Loss of CGT discount on the entire gain no transitional valuation applies because the property changed hands after 1 July 2027
• All future losses carry-forward only

Worked example

David contracted off-the-plan in 2025, settled August 2027, and is the first owner. He gets full new build treatment. Six months into ownership David is transferred overseas and sells to Emma in March 2028. Emma's purchase is treated as established. She faces restricted deductibility and CPI+30% CGT on her full gain.

Pricing Impact in the Secondary Market

Rational pricing should reflect the lost concessions for subsequent buyers. Industry analysts are forecasting a secondary-market discount on off-the-plan resales of 3-6% relative to comparable first-sale apartments reflecting the present value of lost tax benefits over a typical holding period.

The implication for investors:

• If you buy off-the-plan, plan to hold for the long term. The concessions you enjoy do not transfer on sale.
• If you're buying second-hand new apartments, expect a discount and demand one.
• If you're a developer, encourage long-term hold by initial investors. Quick flips devalue the secondary stock.

Structuring the Purchase for Maximum Benefit

Ownership entity

The negative gearing concession applies to individuals and partnerships of individuals. Properties held through companies or non-fixed trusts face different rules (trust losses do not flow through in the same way). Most off-the-plan investors hold in their own name or in joint names with a spouse for negative gearing purposes.

Joint ownership

Joint ownership with a spouse allows the negative gearing loss to be split typically in proportion to ownership shares. This can optimise the use of marginal rates. For a high-income earner with a lower-income spouse, structuring ownership 99/1 in favour of the high-income earner maximises the immediate tax benefit (but increases the spouse's CGT share on disposal).

Borrowing strategy

Off-the-plan apartments typically require a 10% deposit on exchange, with the balance payable at settlement (often 2-3 years later). Interest costs only commence at settlement. Investors should plan financing to take effect at settlement and ensure all interest is properly attributable to the investment property (not personal borrowings).

Risks of Off-the-Plan Investment

The tax benefits of off-the-plan should not obscure the genuine risks of this asset class:

• Valuation risk. Bank valuations on settlement can be below contract price, requiring additional deposit. This has been a persistent issue in some apartment markets.
• Sunset clause risk. Developers can sometimes invoke sunset clauses to terminate contracts if construction is delayed releasing them to resell at higher prices.
• Developer default risk. If a developer becomes insolvent during construction, deposits may be at risk depending on contract terms.
• Quality risk. Some recent apartment developments have exhibited construction defects (cladding, waterproofing, structural). Due diligence on the developer's track record is essential.
• Oversupply risk. Apartment markets in some cities have experienced cyclical oversupply leading to price stagnation or modest falls.

Investor Checklist

• Confirm the contract is direct with the developer (not assignment from another investor)
• Verify settlement occurs within the 12-month occupation window from completion
• Document new build status for ATO purposes contract, certificate of occupancy, settlement statement
• Obtain independent valuation around settlement (for finance and for CGT cost base)
• Review sunset clauses and developer warranties carefully
• Confirm the developer is licensed and the project has appropriate insurance
• Plan for medium- to long-term hold to maximise the tax concession value