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How the Federal Budget will impact property

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By John McGrath

In this week’s Federal Budget, a range of measures were announced that should have a positive impact on the market in terms of increasing supply and helping young buyers purchase their first home. 

There has been a lot of pressure on both state and federal governments to ‘fix’ the affordability issue, so long as they don’t do anything to decrease property values as this would be to the detriment of the 67% of Australians who currently own their own homes. Not an easy task. 

But the Federal Government has had some good ideas and the measures in the Budget should be useful. Among the most impressive measures is incentives for downsizers to sell. 

From July 1, 2018, individual downsizers aged 65 and over who have lived in their home for at least a decade will be able to make a non-concessional contribution of up to $300,000 into their super from the proceeds of their sale. Couples will be able to contribute $600,000. 

This is a win for retirees as it removes a significant disincentive for older Australians to downsize and will result in greater supply of family homes to young family buyers. This is especially important in markets like Sydney, where lack of supply has been a significant factor in pushing up prices and making it very hard for young families to secure appropriate accommodation. 

Additional money in super will also help older Australians fund their retirement long term as their superannuation investments are taxed at a lower rate of 15%. The contributions that can be made from the sale of their homes will be exempt from the usual voluntary contribution rules. 

First home buyers are also getting some help through the First Home Super Saver Scheme. 

From July 1 this year, first home buyers will be able to make voluntary contributions of up to $15,000 per year into their super ($30,000 total) for the purposes of saving for their first home. 

These contributions will be taxed at the usual super rate of just 15%. These funds, along with earnings, can then be withdrawn for a first home purchase from July 1, 2018, minus a small withdrawal tax (the buyer’s marginal rate less a 30% offset).

We see this measure as beneficial to all buyers, however, the reality is that buyers in Sydney and Melbourne will benefit less given median home values are so much higher. Currently, a 20% deposit on a median priced Sydney apartment is close to $150,000, so the $30,000 cap on savings through super means this particular measure is a long way off meaningful assistance.

However, we can’t hand first home buyers a blank cheque either, so this measure appears to be a sensible way for the Federal Government to contribute to affordability. For today’s younger buyers, saving the deposit is a far bigger hurdle than managing repayments given mortgage rates are so low. 

Don’t forget that federal assistance to first home buyers will be in combination with state government measures as well. The Victorian Government plans to abolish stamp duty on properties worth $600,000 or less and double the First Home Owner Grant for regional buyers. We’re yet to find out what the New South Wales Government intends to do but a taskforce has been set up.

All in all, first home buyers in Victoria and New South Wales are about to receive a lot of new assistance and young people should start planning how to take full advantage of it now. 

There is also a focus on developing urban areas of cities which will take pressure off the inner ring suburbs. Western Sydney was a key focus of the Budget, with reform of planning and zoning laws and a reduction in development approval timeframes to enable more new housing and better infrastructure connecting the west to the rest of Sydney. This is really important for the future, with population growth in eight key council areas expected to be close to 500,000 over the next 20 years. 

There has been much debate about negative gearing and capital gains in the lead-up to the Budget but no major changes have been made, just a few tweaks around the edges. 

From July 1 this year, landlords will no longer be able to claim travel expenses when visiting their properties; nor depreciation on items purchased by previous owners on future investments.  

A vacancy tax will be levied on foreigners who leave their investment properties vacant. This should add to the supply of rental homes for Australians by encouraging foreigners to lease their properties. 

From now on, the proportion of new developments that can be sold to foreign investors will be capped at 50%. Currently there is no limit.

The Government also plans to stop foreign and temporary tax residents from claiming the main residence capital gains tax exemption when they sell their Australian homes. This feels like a disincentive especially for skilled professionals to come to Australia with their families. 

I think we should be welcoming foreign investment into our country, as there is a lot of new wealth in Asia that could be headed for our shores if we put out the welcome sign. Right now, I think both federal and state governments are sending unhelpful messages to foreign investors with a range of new fees and rules that limit or discourage their participation in our real estate market.  

Overall, this Budget is aimed at building confidence in our economy and the measures above will no doubt assist in this process. A strong economy benefits every buyer, seller, investor and renter. 

Published: Thursday, May 11, 2017


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