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

What Makes Off-the-Plan Investment Loans Different

Off-the-plan investment loans are approved before the property exists, which means lenders assess risk differently compared to established property purchases. The loan is conditional on the final valuation matching or exceeding the purchase price at settlement, which can be 12 to 36 months after you sign the contract.

Consider a property investor purchasing a two-bedroom apartment in South Perth at $550,000 with a 20% deposit. The contract is signed in mid-2026, with settlement scheduled for early 2028. The lender provides conditional approval based on the contract price and the investor's current financial position, but the final loan amount depends on the completed property's value at settlement. If the market softens and the property values at $520,000, the investor faces a $30,000 shortfall that must be covered with additional cash or a higher loan-to-value ratio, which triggers Lenders Mortgage Insurance. If the investor cannot meet the shortfall, the lender may reduce the approved loan amount, forcing the buyer to renegotiate or risk losing their deposit.

This valuation risk is specific to off-the-plan purchases and affects both your deposit structure and borrowing capacity. Lenders typically allow a 10% to 20% variance between contract price and final valuation, but anything beyond that requires additional equity or a restructured loan.

Sunset Clauses and How They Affect Loan Approval

A sunset clause allows either the buyer or developer to walk away from the contract if settlement has not occurred by a specified date. This clause protects you if the development is significantly delayed, but it also creates uncertainty for lenders.

Most off-the-plan contracts include a sunset clause of 24 to 36 months from the contract date. Lenders are aware that if the developer exercises the sunset clause in a rising market, they can resell the property at a higher price, leaving the original buyer without the investment. For this reason, some lenders will not issue formal approval until construction is well underway or nearing completion.

In our experience, investors purchasing off-the-plan in areas with strong demand, such as South Perth or along the Swan River, should confirm the developer's track record and the likelihood of on-time completion. Developers with a history of delayed projects or financial instability increase the risk that your loan approval expires before settlement, requiring reapplication under potentially less favourable terms.

How Lenders Assess Rental Income on Incomplete Properties

Lenders calculate your borrowing capacity using projected rental income, but they apply a discount to account for vacancy and the fact that the property does not yet exist. Most lenders will use 80% of the estimated rental income when assessing serviceability for an investment loan.

If the projected rent for a two-bedroom apartment in South Perth is $650 per week, the lender will assess your serviceability using $520 per week. This reduced figure affects how much you can borrow, particularly if you already hold other investment properties or have a high loan-to-value ratio on your owner-occupied home.

Some lenders also require that you demonstrate genuine savings equivalent to at least 5% of the purchase price, held for a minimum of three months, separate from any gifted deposit or equity release. This requirement is more common for off-the-plan purchases than for established properties because the extended settlement period increases the risk of changed financial circumstances.

Interest Only Repayments and Why They Matter for Off-the-Plan Investors

Interest only repayments allow you to pay only the interest portion of the loan for a set period, typically one to five years. For off-the-plan investors, this structure reduces holding costs during the early years of ownership, which is particularly useful if you are managing multiple properties or waiting for rental growth to improve cash flow.

An investor purchasing an off-the-plan unit in South Perth with a loan amount of $440,000 at a variable interest rate of 6.5% would pay approximately $2,383 per month on an interest only basis, compared to $2,779 on principal and interest over a 30-year term. The $396 monthly difference can be redirected toward other investments, renovations, or offset against the holding costs during periods of vacancy.

Not all lenders offer interest only terms on off-the-plan purchases, and those that do may limit the interest only period to one or two years, particularly if your loan-to-value ratio exceeds 80%. It is worth comparing investment loan options from multiple lenders to find products that allow longer interest only periods without requiring a full switch to principal and interest immediately after settlement.

Tax Treatment and the 2026 Budget Changes

Off-the-plan properties purchased after 12 May 2026 are treated as new builds for the purposes of negative gearing and capital gains tax, which means they retain the existing 50% CGT discount and full negative gearing deductions even after the 1 July 2027 changes take effect. This makes off-the-plan purchases considerably more attractive than established properties for investors focused on long-term capital growth and tax minimisation.

Negative gearing allows you to offset the net loss from your rental property against other income, such as salary, reducing your taxable income. If your off-the-plan apartment in South Perth generates $33,800 in annual rent but costs $38,000 in interest, body corporate fees, and claimable expenses, the $4,200 net loss can be deducted from your taxable income. For a taxpayer in the 37% marginal tax bracket, this saves approximately $1,554 in tax each year.

When you eventually sell the property, you will only pay tax on 50% of the capital gain, provided you have held it for more than 12 months. This CGT discount applies to all new builds purchased from 13 May 2026 onwards, even if they settle after 1 July 2027, giving off-the-plan investors a clear advantage over those purchasing established stock.

Loan Reapproval Risk and How to Manage It

Because settlement occurs 12 to 36 months after the loan is conditionally approved, your financial circumstances or the lender's credit policy may change before the loan is finalised. Lenders reassess your application closer to settlement, which means any reduction in income, increase in debt, or change in employment can result in a reduced loan amount or declined application.

If you take out a car loan, increase your credit card limit, or reduce your working hours between contract signing and settlement, your borrowing capacity may fall below the approved loan amount. Similarly, if interest rates rise or the lender tightens their serviceability buffer, you may no longer meet the lender's criteria even if your personal circumstances are unchanged.

To reduce reapproval risk, avoid taking on new debt during the construction period, maintain stable employment, and keep your broker informed of any changes to your financial position. Some investors choose to refinance to a different lender closer to settlement if their original lender's policy has changed unfavourably, but this requires time and may involve additional costs.

Deposit Structures and Progress Payments

Most off-the-plan contracts require a 10% deposit, typically paid in two instalments: 5% on exchange and 5% within 30 to 90 days. Some developers also require progress payments during construction, which are less common in apartment developments but more frequent in house and land packages.

Progress payments are drawn from your loan as construction reaches specific milestones, such as slab down, frame up, or lock-up stage. If your lender has approved a construction-style loan for an off-the-plan house and land package, you will begin making repayments on each progress payment as it is drawn, even though you are not yet receiving rental income. This creates a cash flow gap that must be managed through savings or offset funds.

For apartment purchases, the developer typically does not require progress payments, and your loan is not drawn until settlement. This allows you to continue saving or investing your deposit funds during the construction period, but it also means you need to maintain the full deposit amount in accessible cash or equity until settlement occurs.

When to Lock in Your Interest Rate

Most lenders allow you to lock in a fixed interest rate up to 90 days before settlement, which creates a timing challenge for off-the-plan investors. If settlement is delayed due to construction issues or council approvals, your rate lock may expire, requiring you to reapply at the prevailing rate.

Some investors choose a variable rate initially and then switch to a fixed rate once the property is completed and generating rental income. Others prefer to split the loan between fixed and variable portions, which provides rate certainty on part of the loan while maintaining flexibility to make extra repayments or access an offset account on the variable portion.

If you are purchasing in a rising rate environment, locking in a portion of your loan can protect your cash flow and serviceability. However, if rates are falling or expected to stabilise, a variable rate allows you to benefit from any reductions without paying break costs to exit a fixed term early. Your broker can help you assess rate movements and lender policies closer to settlement to determine the most appropriate structure for your circumstances.

Purchasing an off-the-plan investment property requires careful timing, a clear understanding of how lenders assess incomplete developments, and a tax structure that takes advantage of the 2026 Budget changes. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions