Last Tuesday’s Federal Budget resulted in some interesting proposals for the Australian real estate sector. Whilst Melbourne’s established property owners and investors are unlikely to be directly affected by the elevated entry prices, the overall policy directions in the budget may have an impact – including some surprising benefits.
This week, we take a look at some of the budget directives, which, if passed through Parliament, may have an impact on homeowners and investors.
Another initiative that may benefit property investors who currently own smaller, low-maintenance homes, townhouses or high-end apartments, is the proposed incentive for retirees to move out of long-held family homes and into smaller residences, by allowing them to make a non-concessional contribution of up to $300,000 from the sale into their super.
Primarily designed to bring more established homes into the market, and set up a positive domino-effect, those keen to seize on the many benefits of downsizing (in addition to the new incentive) will obviously be looking for somewhere to move – namely smaller, easy-to-maintain quality homes in well-serviced suburbs.
First Home Super Saver Scheme
A new saving option will open up for those looking to buy their first home, with the government allowing eligible savers to make voluntary contributions into their superannuation to save for a deposit (and thereby presumably benefit from the tax advantages this will bring). Contributions can begin in July this year, and withdrawals will be possible from July 2018.
However, while contributions and withdrawals will be taxed at a lower rate, the maximum that can be contributed is $15,000 per year and $30,000 in total, although couples will be allowed utilise the saving scheme individually. This will hopefully bring more new homebuyers into the market and could prove beneficial to property investors who might be looking to sell an apartment after 2018.
Tighter regulations on negative gearing
The electorally tricky subject of negative gearing passed relatively unscathed with only a few cuts to what can be claimed as a tax deduction: namely travel costs associated with owning the property and depreciation on equipment such as whitegoods, which the owner didn’t actually purchase themselves.
New restrictions on foreign buyers
The remaining budget announcements relating to real estate were again aimed at freeing up the market for new homebuyers, and targeted non-Australian residents and investors. The first is a proposed $5,000 charge on properties purchased after 9 May 2017, and subsequently left vacant (i.e. not owner-occupied or rented out) for more than six months per year. Application fees for foreign investors will also increase. This is in addition to the Victorian Government’s 1% tax on vacant properties. However, there have already been some questions regarding the ability to actually monitor individual vacancies.
The second announcement involved changes to the Capital Gains Tax on the residential home of foreign citizens. From now on, non-Australians who buy a home in Australia will not receive the usual CGT exemptions on the sale of their primary residence, with CGT tax rates also being increased. Finally, foreign ownership of units in new developments will be capped at 50 per cent – again to encourage local ownership and more fluidity in the market.
While there has already been some speculation that the Budget’s initiatives may add finance to the market and see an increase in prices (contrary to the Budget’s intention), the experts are still divided on the matter. And although the foreign investors may be slightly deterred by the new rules, one of the most noticeable features of the 2017 Budget comes not from what was included, but what was omitted: negative gearing mostly survives another year, and probably will for the term of the Coalition government.