Everything You Need to Know About Off-the-Plan Investment Loans

Financing an Off-the-Plan Investment Property

Off-the-plan investment loans require pre-approval that remains valid for 12 to 24 months while the property is built, with final approval reassessed at settlement when banks apply their current serviceability rules and valuations. The loan amount you can borrow today may not be the amount available when construction completes, particularly if your income changes, lending policy tightens, or the completed property values below contract price.

Business owners face additional considerations because lenders assess income differently depending on how the business is structured. A sole trader declaring $180,000 in taxable income may have far more borrowing capacity than a company director extracting the same amount through a mix of salary and dividends, because most lenders apply a shading factor to company income or require a higher declared figure.

The deposit structure for an off-the-plan purchase typically requires 10 per cent at contract exchange, held by the developer's solicitor in a trust account. That deposit is not financed and must come from genuine savings, equity in another property, or a family gift. At settlement, you need the remaining funds, which include the balance of the purchase price, stamp duty, legal fees and any Lenders Mortgage Insurance if your investment loan sits above 80 per cent LVR.

What Lenders Assess Before Construction Begins

Lenders assess your current income, liabilities and the property's projected value at settlement. Your initial approval is based on an estimate of what the property will be worth when completed, not the price you agreed to pay. If the lender believes the end value will be lower than your contract price, they cap the loan to the estimated security value, leaving you to cover the gap at settlement.

Consider a buyer who contracts a two-bedroom apartment in a Maroubra development for $950,000 with settlement due in 18 months. At the time of pre-approval, the lender values the completed property at $920,000 and approves a loan at 80 per cent LVR, which gives a loan amount of $736,000. The buyer expects to borrow $760,000 (80 per cent of the purchase price), but the lender has capped it to the estimated value. At settlement, the buyer needs an additional $24,000 plus the original $95,000 deposit, stamp duty of approximately $39,000, and legal costs. The total cash required has jumped to around $160,000.

We regularly see this scenario unfold when pre-approval is granted on an architect's render and optimistic assumptions about a rising market, but the lender's valuer takes a more conservative view once comparable sales data accumulates during the construction period.

How Settlement Timing Affects Your Borrowing

Settlement typically occurs 12 to 24 months after contract exchange, and lenders reassess your serviceability at settlement using the interest rate and buffer in place at that time. A pre-approval issued in mid 2026 will expire or require revalidation before construction completes. If rates rise, your income drops, or your existing debts increase, you may no longer qualify for the original loan amount.

APRA requires lenders to apply a serviceability buffer of 3 percentage points above the product rate. That buffer is applied at the time of final approval, not at the time of pre-approval. If the product rate rises between pre-approval and settlement, your assessed repayment capacity shrinks.

Interest Only or Principal and Interest for Off-the-Plan Investment

Interest only repayments reduce your monthly outlay and increase your cash flow during the first years of ownership, which is why most investors choose this structure. Lenders typically offer interest only terms for five years on investment loans, after which the loan reverts to principal and interest unless you negotiate an extension or refinance.

Principal and interest repayments build equity faster and reduce the total interest paid over the loan term, but they also increase your monthly commitment. For business owners managing irregular income or planning to expand a property portfolio, the lower repayment on an interest only loan provides flexibility to direct capital elsewhere.

The choice depends on your cash flow requirements and whether you plan to hold the property long term or sell after a period of capital growth. If your strategy involves leveraging equity to acquire additional properties, interest only repayments preserve capital while you build the portfolio. If your goal is to reduce debt ahead of retirement, principal and interest repayments align with that outcome.

Tax Changes Affecting Off-the-Plan Investment Properties Purchased Now

Properties acquired on or after 7:30pm AEST on 12 May 2026 are subject to negative gearing restrictions from 1 July 2027, unless the property qualifies as an eligible new residential dwelling. Off-the-plan purchases contracted after that date and time fall under the new rules, which quarantine rental losses so they can only be offset against residential rental income or carried forward to offset future residential income or capital gains.

Eligible new builds are defined as dwellings constructed on previously vacant land, or dwellings that increase the total number of dwellings on a site. A two-lot subdivision in Balmain with a new duplex replacing a single cottage qualifies. A knock-down rebuild that replaces one dwelling with one dwelling does not. Most off-the-plan apartment developments meet the definition because they construct multiple dwellings on land that was either vacant or previously held a smaller number of dwellings.

If the property qualifies as an eligible new build, you retain access to negative gearing under the existing rules, meaning rental losses can be offset against your wage or business income. For a business owner on the top marginal rate, that distinction is worth several thousand dollars each year if the property runs at a loss during the early stages of ownership. You also retain the option to choose between the 50 per cent CGT discount or cost base indexation when you sell, whereas non-qualifying properties are moved to an indexed cost base and a 30 per cent minimum tax rate on real gains from 1 July 2027.

Before contracting an off-the-plan investment property, confirm with your solicitor and accountant whether the development meets the definition of an eligible new build. Developers are not always clear about this in their marketing material, and the distinction determines how your losses are treated for more than two decades if you hold the property long term.

Deposit and Equity Release for Business Owners

Business owners with equity in an existing property often release that equity to fund the deposit and settlement costs for an off-the-plan investment. Lenders will allow you to borrow against the equity in your home or an existing investment property, provided your total debt across all properties does not exceed your borrowing capacity.

The advantage of this approach is that it preserves your cash reserves for the business and allows you to acquire the investment property without liquidating assets or disrupting operating capital. The downside is that your total debt load increases, and your serviceability is assessed across all loans simultaneously.

When you release equity to fund an off-the-plan deposit, the funds sit in an offset account or savings account until settlement. Interest on the loan used to release that equity is generally not deductible until the funds are used to acquire the income-producing asset. Your accountant will guide you on the apportionment of interest once the property settles and begins generating rental income.

If you intend to use equity from your home to fund the purchase, structure the borrowing so that the investment portion is clearly separated from your owner-occupied loan. This is typically achieved by splitting the facility into two loans secured against the same property. The split ensures that interest on the investment portion remains deductible, while interest on your home loan does not. Most brokers who work with business owners across the Eastern Suburbs and nationally will set this up as standard practice, but it requires active structuring at the time of the equity release.

How Rental Income Is Treated During Construction

Rental income is not factored into your borrowing capacity until the property is completed and tenanted. Lenders assess your serviceability based on your current income and liabilities, and they do not give credit for projected rent during the construction phase. Once the property settles and you provide a signed lease, lenders will include rental income when assessing any future refinancing or additional borrowing, but they typically shade that income by 20 per cent to account for vacancy, maintenance and management costs.

For an off-the-plan property settling in 18 months, you need to demonstrate that your income today can service both your existing debts and the new investment loan, without relying on rent. That creates a higher serviceability hurdle than purchasing an established property that is already tenanted, because the rental income from an established property can be included immediately.

This is particularly relevant for business owners whose income fluctuates or who are reinvesting profit into growth. Lenders assess your most recent two years of tax returns and your current year's financials if available. If your taxable income has dropped because you have reinvested in equipment, staff or inventory, your borrowing capacity shrinks accordingly.

Call one of our team or book an appointment at a time that works for you to discuss how your business structure and income documentation will be assessed for an off-the-plan investment, and what deposit and equity options are available before you commit to a contract.

Frequently Asked Questions