Building new? Why location matters more than tax breaks

The Federal Government has made its intentions clear. It wants investors to help solve Australia’s housing shortage by purchasing or building new homes. Through tax concessions, planning reforms and policy incentives, the message is simple: buy new.

But should you?

Many buyers are evidently focusing on the tax benefits while overlooking the investment risks. A tax incentive should never be the primary reason to buy an asset. The quality of the investment should always come first.

New builds can absolutely play a role in a successful investment portfolio, but investors need to understand the risks before signing a contract.

New doesn’t mean problem-free

One of the biggest misconceptions is that a brand-new property will be maintenance-free.

The reality is that many defects simply cannot be identified until someone has actually lived in the home.

It’s only after months of occupation that issues begin to emerge. Doors begin sticking as the building settles. Waterproofing failures reveal themselves after repeated use. Plumbing problems only become apparent once bathrooms, kitchens and laundries are used every day.

Some defects are minor inconveniences. Others can result in significant rectification costs.

While statutory warranties exist, they are only valuable if the responsible party honours them. If they don’t, investors can find themselves facing expensive legal action, lengthy disputes and months, or even years, before defects are rectified.

Don’t be fooled by the display home

Display homes often create the impression of premium quality.

They are beautifully presented, professionally styled and immaculately maintained on the surface.

Many building inspectors, however, report that display homes can present unique risks.

These homes often remain vacant for several years before being sold. During that time, plumbing systems may never be fully used under normal household conditions. Once occupied, blocked pipes, drainage issues and plumbing failures can emerge. Some inspectors have even reported severe plumbing failures resulting in significant flooding shortly after settlement.

A display home may look perfect cosmetically, but appearances don’t always reflect performance.

Know who is actually standing behind the warranty

One of the most overlooked questions investors ask is also one of the most important.

Who actually carries the warranty? Is it the developer selling the property? Is it the builder, or are they related entities?

The answer matters.

If defects arise, investors need to know exactly who is contractually responsible for rectifying them and whether that business has the financial capacity and long-term commitment to honour those obligations.

Experience matters

Every successful developer built their first project at some point, however, first-time developers naturally confront greater execution risk.

Development involves managing consultants, engineers, trades, compliance, construction and finance. Mistakes happen, particularly where there is limited experience overseeing the entire process.

Those mistakes can quickly become an investor’s problem, whether through construction defects, delays or warranty disputes.

It’s particularly important to understand whether you’re buying from an established developer with a proven track record or a small operation undertaking its first (and possibly only) project. If that business disappears once construction is complete, pursuing warranty claims can become significantly more difficult.

Don’t let the tax tail wag the investment dog

One trend becoming increasingly common is investors trying to secure a new build within a fixed budget.

The problem is that construction costs don’t vary dramatically across Australia. Whether you’re building in Sydney, Adelaide or regional Queensland, the cost of constructing the home itself is relatively similar.

That leaves only one lever to reduce the overall purchase price: the land value.

As a result, many investors are pushed further and further from major employment centres into fringe or regional locations simply to make the numbers work.

Unfortunately, that’s where investment fundamentals are often compromised.

The best-performing investment locations are typically supported by strong employment drivers, population growth, infrastructure investment, limited housing supply, healthy rental demand and diverse local economies.

Buying a new property purely because it attracts a tax concession, while ignoring these fundamentals, may deliver a good tax outcome but ultimately produce a poor investment outcome.

Building comes with holding costs

Unlike purchasing an established investment property, building often means carrying months, even years of expenses before receiving any rental income.

Interest on land loans, progress payments, council rates and insurance all continue during construction, yet there is no tenant helping offset those costs.

If construction is delayed, which remains relatively common, those holding costs continue to increase, placing additional financial pressure on investors.

Off-the-plan carries its own risks

Buying off-the-plan introduces another layer of uncertainty.

Settlement may occur two or even three years after contracts are exchanged.

During that time lending policies may tighten, interest rates can change, property values can fluctuate and buyers’ personal financial circumstances may alter.

It isn’t uncommon for purchasers who qualified for finance when they signed the contract to find themselves unable to obtain finance at settlement.

In those circumstances, buyers risk losing deposits, facing legal action or being forced into costly alternative finance arrangements.

If you’re going to build, build in the right market

Despite these risks, new builds can absolutely form part of a successful long-term investment strategy.

The key is ensuring you’re buying in a market with strong underlying fundamentals and undertaking thorough due diligence on both the builder and the developer and not simply chasing a tax concession.

If we were advising investors looking to build today, these would be three of our preferred markets.

Adelaide – southern coastal corridor

The southern metropolitan corridor of Adelaide, particularly Seaford, Moana and the surrounding coastal suburbs, continues to stand out as one of Australia’s strongest opportunities for new-build investors.

The area is benefiting from improving infrastructure, population growth, increasing lifestyle appeal and strong buyer demand, while still offering relative value compared to many eastern states.

Investors should expect an entry-level house-and-land package to cost approximately $900,000 to $1.1 million, depending on the location and level of finish.

Queensland – Aura

Aura, Stockland’s master-planned community on the Sunshine Coast, remains one of Australia’s standout long-term growth precincts.

Over the coming decades it will benefit from extensive schools, retail centres, healthcare facilities, employment opportunities and community infrastructure.

One challenge is that land releases are often prioritised for owner-occupiers, making opportunities for investors more limited. Entry-level house-and-land packages are now generally above $900,000.

Canberra region – ACT and NSW border

The Canberra region continues to benefit from one of Australia’s strongest employment bases, driven by government and professional services, together with consistently strong rental demand.

Whether investing within the ACT or nearby NSW growth corridors such as Googong and Queanbeyan, investors are buying into a market underpinned by stable employment, ongoing infrastructure investment and resilient long-term demand.

The trade-off is affordability, with entry-level house-and-land opportunities generally requiring a budget well in excess of $1 million.

The bottom line

Government incentives are designed to encourage housing supply, and they certainly make new construction more attractive from a tax perspective. But tax incentives should complement a sound investment decision, not drive it.

Before buying a new build, ask yourself one simple question: would I still buy this property if there were no tax incentives attached?

If the answer is no, you may be making a tax decision rather than an investment decision. Because in property, tax benefits come and go.

Quality locations, strong fundamentals and careful due diligence are what create long-term wealth.