Buying Off-the-Plan in a Falling Market: Risks and Tax Rules

Off-the-plan contracts signed during the 2024-25 property boom are now settling into a noticeably softer market. A buyer who agreed to a price 18 months ago may find the bank's settlement valuation comes in lower, creating a finance shortfall, while the 2026-27 Budget's negative gearing reform has made new builds more tax-attractive than established homes. Both are worth weighing before you sign or settle.

A Market That Has Cooled Since You Signed

According to Cotality's Home Value Index, national dwelling values fell 0.9% in August 2026, a fifth consecutive monthly decline, leaving the index 3.6% below its March 2026 peak. Sydney fell 1.4% for the month and sits 7.1% below its February 2026 peak, a faster fall at this stage than the 2022-23 correction. If you signed near that peak, the gap between your contract price and today's market value is exactly what your lender will test at settlement, and contracts from late 2024 or early 2025 are the most exposed.

The Settlement Valuation Gap

An off-the-plan contract fixes your price at signing, sometimes years before the building is finished. Your lender, however, values the property at settlement, based on the market at that time, not when you signed. If that valuation comes in below your contract price, your loan-to-value ratio rises, which can mean a smaller approved loan, extra lenders mortgage insurance, or a lender unwilling to fund the full amount.

Most off-the-plan contracts are not conditional on finance by settlement, so a shortfall does not let you walk away. Options generally include additional deposit from savings or family, a guarantor, a different lender that may value the property more favourably, or a short settlement extension if the developer allows it. Failing to settle at all typically means forfeiting your deposit and possibly exposure to the developer's resale loss, so this is worth planning for well before settlement day.

Why Off-the-Plan Still Makes the Cut on Negative Gearing

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026, with its property measures commencing from 1 July 2027. From that date, an established property bought after 7:30pm AEST on 12 May 2026 cannot be negatively geared against salary, losses instead carry forward against future rental income or a capital gain.

New builds are treated differently. An eligible new build keeps full negative gearing indefinitely, before and after 1 July 2027, and its owner can still choose between the existing 50% capital gains tax discount or the new indexation and 30% minimum tax arrangements on sale. Our article on the reform itself covers the full transition rules. That difference is exactly why off-the-plan is being reconsidered despite the settlement risk above, it is the asset the new rules are designed to keep negative gearing open to.

What Actually Counts as a New Build

Eligibility is not automatic. Broadly, the dwelling needs to be genuinely new: built on vacant land, or replacing a demolished property, and not previously sold as a home. Most off-the-plan apartments meet this, since they sell before anyone has lived in them. The concession is not permanent, though: if a new build is later sold after being occupied, the next buyer does not inherit negative gearing on it, so confirm a development's eligibility rather than assuming.

The Risks That Have Nothing to Do With Price

Valuation and tax treatment are not the only things worth checking, off-the-plan buying carries risks regardless of which way the market moves. Sunset clauses set a completion deadline, and missing it lets either party walk away; developers have used this in rising markets to rescind and resell higher, though NSW (since 2015) and Victoria (since 2019) now require buyer consent or a court order before a developer can rescind, with weaker protections elsewhere. Construction delays of six to twelve months are not unusual, during which interest rates can move and a pre-approval can lapse. And the finished product can differ from the plan: a display suite is a sales tool, and contracts typically allow the developer "minor variations" to finishes and shared facilities. None of these risks are new to this cycle, but a falling market makes the valuation risk more likely to bite alongside them.

Before You Sign, or Settle

A few checks are worth doing first: get an independent valuation ahead of settlement rather than assuming the contract price will hold, keep a cash buffer beyond your deposit in case a shortfall needs covering, review the sunset clause and your rescission rights, confirm the specific development's new-build status for negative gearing, and read the finishes schedule in detail rather than relying on the display suite.

Off-the-plan property can still make sense in this market, with negative gearing now tied to new builds rather than established homes, but the settlement risk is specific to your contract and your lender. Speak to us about your circumstances, or get in touch, before you sign or settle.

Disclaimer: This article contains general information only and does not constitute financial, legal or tax advice. It has been prepared without regard to your objectives, financial situation or needs. Tax and superannuation laws change frequently, and the information in this article may not reflect the current law or may become inaccurate over time. Before acting on anything in this article, you should consider its appropriateness to your circumstances and seek advice from a registered tax agent or qualified adviser.