Why Paying More For A New Build Might Now Be The Cheaper Option

Every client who's ever compared a $1m new build against a $900k established home in the same street has asked some version of the same question: why would I pay $100k more for the same rent? Fair question. Up until 12 May 2026, the honest answer was "it's close, run the numbers." Since the Budget, it isn't close anymore, and the gap runs in a direction most people won't expect.

The old comparison (still relevant, just not the main event)

New builds have always carried a depreciation advantage. A brand-new $1m home might throw off around $21,000 a year in combined capital works and plant & equipment deductions in year one. An established $900k equivalent, depending on its age, might manage $7,000, largely because since 2017 you can't claim depreciation on plant and equipment you didn't buy new. Carpets, appliances, hot water systems, if someone else owned them first, the ATO doesn't want to hear about it.

Run that through the numbers and the extra $100k of debt (at today's investor rates, roughly $6,400 a year in interest) was more or less offset by the bigger depreciation claim, once you're above around a 31% marginal rate. Genuinely close to a coin flip. That was the whole story; until Budget night.

Then the Budget landed, and changed which properties even get to play

From 1 July 2027, negative gearing on residential property is restricted to new builds. Established property losses can no longer be offset against salary or other income — they're quarantined, and can only be used against future rental income or capital gains from residential property. The rule bites for any established property acquired from 7:30pm AEST on 12 May 2026 onward. Anything settled before that is grandfathered for the life of the holding. New builds are carved out entirely, full negative gearing against other income, indefinitely.

It's worth saying plainly: a government that campaigned on ruling this out is now doing it. Whatever you think of the politics, the mechanics are what they are, and they change this comparison from "close" to "not close at all."

What "quarantined" actually means

The loss on an established property doesn't just vanish; it's a deferred asset, not a wasted deduction. It carries forward and reduces tax on future rental profit, or on the eventual capital gain when the property is sold.

But from a year-to-year cash flow perspective; the number that determines whether a client can actually afford to hold the property; it's worth nothing until then.

Same $1m vs $900k example, run under the new rules

Same two properties. Same $700 a week rent. Steady state, once the quarantining applies from FY2027-28:

 

	New build ($1m)	Established ($900k)
Rent	$36,400	$36,400
Interest (6.4% p.a.)	($64,000)	($57,600)
Depreciation	($21,000)	($7,000)
Total loss	($48,600)	($28,200)
Usable against salary	Full $48,600	$0 - quarantined
Tax refund (39% MTR)	$18,954	$0
Net cash cost per year	$8,646	$21,200

 

That's a $12,554-a-year swing in favour of the new build, not the roughly $1,500 the old depreciation-only comparison would have shown. The bigger deduction was never really the interesting part; it's that the established property's interest bill, by far its largest cost, stops producing a tax refund at all.

One nuance worth having in your back pocket for clients settling now: the quarantining doesn't start until 1 July 2027, so an established property bought today still gets close to a full financial year of normal negative gearing before the rule bites. It's a grace period, not an exemption.

The kicker: new builds also get to choose their CGT treatment

From 1 July 2027 the 50% CGT discount is replaced by cost base indexation plus a 30% minimum tax on real gains, for everyone, on every asset. Except new build investors get a choice at the point of sale: the old 50% discount, or indexation and the minimum tax, whichever produces the better outcome. Established property investors don't get that choice, they're locked into indexation only.

Those two methods don't always favour the same client. Indexation only compensates for inflation, so it tends to win on shorter holds or where growth has been modest. The 50% discount is a flat haircut regardless of how much of the gain was genuinely "real," so it tends to win on long holds with strong capital growth. New build investors get to run both numbers at sale and take the better one. That optionality has value on its own, before you even know which method wins.

What this means at the coalface

- The new-build premium isn't dead money, for a purchase made today, it's buying a structurally cheaper property to hold every single year, not just a bigger tax deduction.

- Established property hasn't stopped being a legitimate strategy, it's just no longer a like-for-like comparison with new. The loss is deferred, not gone, and that still suits some clients and some strategies.

- Anyone who already holds an established investment property, or who exchanges before the cut-off, is grandfathered. This is a forward-looking purchase decision, not a reason to touch an existing portfolio.

- None of this is off-the-shelf anymore. Rate, marginal tax rate, actual depreciation schedule, property age, and purchase timing all move the answer, sometimes by a lot.

 

Nothing about property investing used to require this many moving parts. It does now. If you're weighing up new versus established, or wondering what any of this means for a property you're already holding, get in touch and we'll run the actual numbers for your situation.

Funded Futures Financial Services Socials