The Budget and The Property Market

Housing affordability

The biggest initiative to tackle the housing affordability crisis is the First Home Super Savers Scheme. This will allow the first home buyers to save up to $15,000 a year at a lower tax rate of 15%, up to a total of $30,000 per person. This will take the form of additional superannuation contributions which can then be withdrawn from 1 July 2018.

Of course if this does increase demand from first home buyers, supply will also need to increase to avoid steeper price rises.

On that note, there are also several initiatives aimed at increasing supply, many designed to curb foreign investing:

1.       Foreign investors are going to be charged $5,000 on properties that are vacant for more than six months to encourage them to be put on the rental or sale market.

2.       Foreign owner occupiers will now have to pay capital gains tax is they sell their main residence.

3.       Only 50% of new developments can be sold to foreign buyers

4.       To encourage downsizing, over 65s will be allowed to put up to $300,000 from a property sale into their superannuation – if they’ve lived in it for over 10 years.

5.       A $1billion National Housing Infrastructure Facility will be established to address areas facing severe undersupply and inadequate infrastructure is preventing the development of new homes. Supply should also be improved by planning and rezoning initiatives, including the Wester Sydney city deal.

Capital gains tax changes

Australian property investors still receive a 50% discount on capital gains tax if they sell a property they’ve held for more than 12 months. For investors in affordable housing, the Budget has increased this discount to 60%.

Previously all owner occupiers were exempt from Capital Gains Tax on their main residence (subject to certain conditions). This exemption will no longer apply to foreign owner-occupiers.

The CGT withholding tax rate for foreign tax residents is being lifted from 10 per cent to 12.5 per cent and the CGT withholding threshold for foreign tax residents is being dropped from $2 million to $750,000.

 Removal of some tax deductions on investment properties

Negative gearing remains (as expected) but there were two much more minor changes to property tax deductions. From 1 July investors will not be able to claim deductions on travel expenses to visit investment properties. They will also not be able to claim depreciation on any items purchased by a previous owner.

 Will the bank levy affect property owners?

There has been speculation that the bank levy will be passed on to consumers in the form of higher interest home loans and/or an increase in fees. More information about this will be available in the coming weeks and we will update with another post. 

 What hasn’t changed

The government had already made a firm commitment to keep negative gearing in place and there were no surprise changes there. Stamp Duty is controlled by each state, and interest rates are controlled by the Reserve Bank – so neither could have been changed in the budget.