The new build tax exemptions may seem friendly. One property expert warns it’s a’ trap’

This could inspire new investors to buy into sprawling apartment complexes or house-and-land packages on the outskirts of major cities – but these types of properties have historically performed ‘poorly’ as investments.

Property investment guru and CEO of Your Empire Chris Gray said the federal government’s new build exemption could “screw” investors who buy solely based on their freedom to apply negative gearing.

“It’s basic economics. If something is scarce and a lot of people want it, the price goes up. If there’s a lot of supply, that won’t happen.”

Australian first-time investors who weren’t lucky enough to buy before 7:30pm on budget night now have two choices: buy a newly built home for the negative gearing benefit, or lose the tax benefit and buy an existing property.

Gray, who has 30 years of experience buying and selling real estate, says seasoned investors will know how to give new construction a wide berth.

He would still choose the option of buying a second-hand home in an area that is in high demand, despite the likelihood that this will not be positive in the next ten years.

However, some inexperienced buyers can still be fooled by something called “manufactured capital appreciation.”

And it may take years for the reality of their bad investment to sink in

“Developers can sell 20 at a time and release them slowly. They sell the first lot for, say, $500,000 and the next for $525,000 and then $550,000,” Gray added.

‘Everyone thinks it’s rising, but that’s not the case.

“It’s not until you have someone sell it to someone else in maybe five years that you realize the property may not have grown in value at all.”

Real estate experts previously criticized this decision as a “huge injustice” to younger buyers who are still saving for a home.

The same younger investors will also compete with foreign buyers in the new construction market.

In this year’s budget, the federal government extended the ban on foreign purchases of existing homes until 2029.

This could mean that an influx of investors buying into this market artificially drives up prices, even pushing buyers into negative equity.

“If you get a whole group of people moving west to buy these houses and land parcels, it almost creates a false demand for them,” he added.

“For example, where real estate was worth a million dollars, because you get the negative gearing it could go up to $1.025 million or $1.05 million.

“At the end of the day, it’s actually not a realistic benefit.”

This advice is general and does not take into account your objectives, financial situation or needs. Consider whether the advice suits you and your personal circumstances and seek advice from a broker or advisor before taking action.

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