Investment Timing: The Pros and Cons of Buying Now

Buying an investment property in Eltham involves more than finding the right house on the right street.

If you're considering a purchase right now, the decision has changed substantially over the past twelve months. Federal changes to negative gearing and capital gains tax that take effect from July 2027 mean the date you exchange contracts affects how you can use losses and how gains will be taxed when you eventually sell. Separately, debt-to-income caps introduced in February limit how much some investors can borrow regardless of property value. Both changes are live, both affect timing, and both shape how you should structure finance.

How Negative Gearing Quarantine Changes What You Can Claim

From 1 July 2027, net rental losses on residential property bought after 7.30pm on 12 May 2026 can only offset other residential rental income or be carried forward. You cannot offset those losses against salary or wages. Properties purchased before that date, including contracts signed before the cutoff that settle after, are grandfathered and continue under the existing rules. Eligible new builds retain full negative gearing regardless of purchase date.

If you buy an established townhouse in Eltham this year and it runs at a $12,000 annual loss, that loss will be quarantined from July 2027 unless you also hold other positively geared residential property. If this is your only rental, the loss carries forward until you sell or until the property moves into positive cashflow, at which point the carried-forward losses reduce your assessable rental income.

Consider a buyer purchasing an established villa unit in central Eltham in August this year. Rental income is $28,000, deductible expenses including interest are $40,000. Under the new rules from July 2027, the $12,000 loss cannot reduce their employment income. It accumulates. By the time they sell in eight years, they may have $90,000 in carried-forward losses. Those losses can offset capital gains on the property or future rental income from that property or others, but not wages earned in the meantime. That changes the cashflow equation substantially for investors relying on tax refunds to service the loan.

Debt-to-Income Caps and What They Mean for Loan Amount

The debt-to-income cap that took effect in February allows lenders to approve up to 20 per cent of new investor loans at a DTI of six times or more. Beyond that threshold, an application either needs to be in the lower-DTI bucket or will be declined regardless of deposit size or rental income.

If you earn $110,000 and already have $450,000 in owner-occupied debt, your total borrowing is above six times income before you add an investment loan. Some lenders will still approve additional borrowing if serviceability clears and the application falls within their 20 per cent allocation. Others exhaust that allocation early in the quarter and decline applications until the next reporting period. That creates timing risk you cannot control.

We regularly see this with investors in Eltham who hold equity in their home and meet all other lending criteria but sit just over the DTI threshold. The same application submitted in July may be declined, then approved in October when the lender's allocation resets. That unpredictability makes contract timing harder to manage, particularly in a suburb where good rental stock does not stay on the market long.

Capital Gains Tax Indexation Versus the Discount Method

From 1 July 2027, the 50 per cent CGT discount is replaced with cost base indexation and a minimum 30 per cent tax rate on real gains for most residential investment property purchased after the negative gearing announcement date. Properties held before that cutoff retain the 50 per cent discount on gains accrued to 30 June 2027, with only post-June 2027 gains subject to the new treatment. Eligible new builds can elect between indexation and the discount.

In practical terms, if you buy an established property now and hold it for fifteen years, part of the gain is taxed under the old discount method and part under indexation. The split depends on how much value accrues before and after July 2027. If you buy a new build, you choose the treatment that delivers the lower tax outcome at sale.

For someone buying in one of the newer townhouse estates near Were Street, the property may qualify as an eligible new build depending on when it was completed and whether it increases the dwelling count on the land. If it does, you retain access to full negative gearing and can elect the 50 per cent discount at sale. That can change the after-tax return by several percentage points over a decade, which affects whether the purchase delivers the yield and growth you need.

Why Rental Vacancy and Body Corporate Costs Matter More Now

When losses are quarantined, cashflow tightens. A property that sits vacant for six weeks between tenants or incurs an unexpected $4,000 in body corporate levies becomes harder to carry without access to a tax refund. Eltham has a relatively low rental vacancy rate, but units near the town centre can experience longer turnaround times if condition or price is not aligned with tenant demand.

You also need to account for interest-only periods ending. Many investors structure investment property finance with a five-year interest-only term, then revert to principal and interest. If losses are quarantined when that reversion happens, your after-tax position deteriorates at exactly the moment repayments increase. Planning the loan structure around those transitions becomes more important than it was under the prior rules.

Refinance Timing and Rate Discount Access

Investor interest rates have widened relative to owner-occupier rates over the past eighteen months, and rate discounts vary by lender and loan-to-value ratio. If you are purchasing with a 20 per cent deposit, Lenders Mortgage Insurance applies and your interest rate will reflect that risk. Refinancing after two years to access a lower rate with a different lender can reduce interest costs, but only if your DTI and serviceability still comply at that future point.

If income has not increased and debt has not reduced, your refinance options narrow. Some investors lock in too early without considering how rule changes or rate movements might affect their ability to move lenders later. That is particularly relevant if you are relying on future equity release to fund further purchases. A property bought now with tight serviceability may not support additional borrowing in three years if DTI caps tighten further or if your income position has not improved.

Established Property Versus New Build Investment in Eltham

Eltham's housing stock is predominantly established dwellings, with pockets of newer townhouse and unit development concentrated around the activity centre and near Main Road. If your goal is to access full negative gearing and the CGT discount election, you need to purchase an eligible new build, which narrows your options.

An eligible new build must be constructed on previously vacant land or must increase the total dwelling count on the site. A knockdown rebuild that replaces one house with one house does not qualify. A subdivision that replaces one house with two townhouses does. If a new build has been occupied for more than twelve months before you purchase it, it loses eligibility for the subsequent buyer.

In a scenario where you are comparing a $650,000 established home near Eltham Lower Park with a $680,000 new townhouse off Sherbourne Road, the purchase price difference may be offset by the tax treatment over a ten to fifteen year hold. The newer property may rent for slightly less due to body corporate fees and a smaller land component, but retaining the ability to offset losses against wage income and elect the CGT discount can shift the total return in favour of the new build.

Should You Wait or Purchase Before the Rules Take Full Effect

Properties purchased before 7.30pm on 12 May 2026 are grandfathered. Properties purchased between that date and 30 June 2027 can be negatively geared under the old rules until 30 June 2027 only, then become subject to quarantine. Properties purchased after 1 July 2027 are quarantined from day one.

If you are ready to proceed and an established property meets your investment criteria, buying before 30 June 2027 gives you twelve months of full negative gearing before quarantine applies. That allows you to claim one year of losses against other income, which can improve cashflow and serviceability for the first year. If you delay until August 2027, that option is gone.

The counterpoint is that waiting may allow you to increase your deposit, reduce your loan-to-value ratio, avoid Lenders Mortgage Insurance, and improve serviceability under the DTI test. Each situation depends on your current debt, income trajectory, and whether you already hold investment property. There is no universal answer, but the decision should be modelled with actual numbers rather than general assumptions about market movement.

Call one of our team or book an appointment at a time that works for you. We can model your scenario under both the current and post-July 2027 rules, assess your position against DTI thresholds, and help you structure an investment loan that aligns with the timing that makes sense for your circumstances.

Frequently Asked Questions