Why the tax change points at building
The negative gearing reform quarantines net rental losses on established residential property acquired after 7:30pm on 12 May 2026, from 1 July 2027. The loss is still deductible against rental income and carried forward, but it no longer reduces tax on wages. Eligible new builds are excluded from the limitation, which is the reason new supply has become the investor's default question. The tax position is for your accountant; the lending side is below. The cut-off date piece walks through the cash flow.
A new build on vacant land
Two loans in sequence, or one loan in two stages: the land, then construction drawn in progress payments as the builder reaches each stage. Interest is charged only on what has been drawn, and repayments are usually interest-only during the build. The lender values the finished property from the plans and the fixed-price contract before approving, and that end valuation sets the loan, not the sum of land plus build cost. The construction loan calculator shows the interest by stage and the repayment at completion.
For an investor, the rent used in the assessment is the valuer's estimate for the finished property, shaded as rental income always is. Serviceability is assessed on the full loan from the start, even though interest during the build is lower.
A granny flat behind an existing property
Usually funded as a top-up or a separate construction split against the existing property, since the secondary dwelling sits on the same title. Lenders are comfortable with it once council approval or a complying development certificate is in place and a fixed-price contract exists; the question that differs lender to lender is how much of the granny flat's rent they count toward servicing. Some count it in full with a lease, some shade it heavily, a few ignore it. The valuation treats the flat as adding to the main property, and often adds less than it cost.
Whether a granny flat on an existing investment property is itself an eligible new build for the tax treatment is an accountant's question, and worth asking before the contract.
Knock-down rebuild into a duplex
The most involved of the three: the existing house is demolished, which removes most of the security the current loan sits on, so the lender treats the project as a construction loan from the land value up. The end valuation of two dwellings is what the loan is approved against, and the lender wants the subdivision path, the development approval and the fixed-price contract settled before the first drawdown. If the existing loan is with a lender that does not do construction, it is refinanced first.
Two dwellings mean two rental incomes in the assessment at completion, and, where the plan is to keep one and sell one, the sale proceeds reduce the loan rather than count as income. Each new dwelling is new supply; how the duplex sits under the negative gearing rules is for the accountant to confirm.
What the lender needs on every route
- A fixed-price building contract from a licensed builder, with the stages and payment schedule.
- Council approval or a complying development certificate, and plans.
- The deposit and costs that sit outside the loan: the gap between the end valuation and the total cost is yours to fund. The deposit and LMI calculator shows where that lands.
- Serviceability for the full loan at the assessment rate, with the existing property's loan and rent included. The investment property calculator shows the holding position once it is tenanted.
Understanding that the loan is approved against the end valuation, not the cost, is the part that shapes every build decision before it.