The new-build tax carve-out could change how doctors build their property portfolios

Analysis | Property for Doctors Research Division, with commentary from Phillip Almeida

For many doctors, building a property portfolio has always been about balancing long-term capital growth with the realities of cash flow, lending capacity and a demanding career. Proposed changes to negative gearing may soon reshape that balance, making new-build properties a more important part of long-term investment strategy than many investors have previously considered.

Under changes flagged in the Federal Budget, negative gearing deductions against personal income would be quarantined to new dwellings, with established property purchased after 1 July 2027 excluded. Annual losses on established stock would instead accrue against future property gains, including capital gains on exit.

While much of the public discussion has centred on property prices, the more immediate impact for many investors, particularly high-income professionals, may be on borrowing capacity.

Why borrowing capacity matters for medical professionals

Phillip Almeida, director and co-founder of Performance Property and Property for Doctors, estimates borrowing capacity on established property could fall by as much as 20 per cent once lenders stop crediting negative gearing benefits in serviceability assessments. In practical terms, that could reduce purchasing capacity from around $700,000 to approximately $560,000.

"The question investors should be asking isn't whether established property outperforms new builds — it does, and our own research says so," Almeida says. "The question is what happens to your strategy when you can no longer afford to keep buying it."

Balancing capital growth with cash flow

Research from the Property for Doctors Research Division, across long-term market cycles, puts the growth penalty on new builds at 2 to 3 per cent per annum compared with established property in the same market. That difference is largely driven by the additional supply introduced through new developments. Over a typical investment timeframe, this can extend the expected holding period from six to nine years for established property to around eight to eleven years for new builds.

That is a meaningful trade-off. However, new dwellings also offer significantly stronger depreciation benefits on both the building and its fixtures, based on today's elevated construction costs. Combined with the retained negative gearing treatment, the Research Division's modelling suggests that a well-selected new build held at long-term average interest rates can remain close to cash flow neutral.

Why doctors may need a different approach

For many doctors, cash flow rather than income is often the limiting factor when building multiple investment properties. Maintaining borrowing capacity while continuing to accumulate quality assets becomes increasingly important as a portfolio grows.

Almeida, whose firm has advised medical professionals nationally since 2013, believes this is where new builds may play a more strategic role.

"Our clients are typically high-income, time-poor, and building portfolios across a 20-year career. Cash flow is the constraint that stalls them — not appetite, not income. A well-selected new build keeps them accumulating when an established-only strategy would force them to stop."

Selection remains critical

The opportunity is not without risk. The Research Division's data shows development suburbs in Queensland, South Australia and New South Wales matching or exceeding the performance of their nearest capital cities across recent growth cycles. However, Almeida stresses that these outcomes depend on selecting locations supported by strong population growth, low vacancy rates and sound affordability fundamentals.

Buy into the wrong development corridor and depreciation alone will not compensate for weak long-term performance.

Building portfolios for the long term

Almeida believes the debate should never be about choosing one strategy over another.

"Most portfolios will end up holding both. Established property for the long-term compounding. New builds to stay in the market when cash flow would otherwise force you to stop. The order matters more than the ideology."

If the proposed reforms proceed in their current form, the period leading up to July 2027 could become an important planning window for investors. For doctors building wealth alongside demanding medical careers, reviewing portfolio strategy before the changes take effect may become increasingly important.