There were some serious expectation on the 2017 federal budget to address housing affordability and property supply issues. Some of the proposed measures will have a positive effect on the market, but overall this budget is just fluffing around the edges.
We’ve ranked the most important proposals regarding real estate on their anticipated impact, if they are passed in full.
From the 1st of July, 2018, people aged over 65 will be able to contribute $300,000 from the sale of their property into their superannuation. Both members in a couple will be able to contribute this amount each, totalling $600,000 from one sale. The property must have been a place of residence for at least 10 years. The contributions will be subject to the Age Pension assets test and will not be exempt from the tax free $1.6 million super cap.
The intention of the policy is to encourage those in the over 65 demographic to sell their three or four family home and free up stock. And it may work to entice owners to sell, perhaps sooner than they would have otherwise. However whether these types of properties, particularly those closer to the CBD, will be affordable for younger families is another matter.
First home buyers super savings
First home buyers will be able to contribute a maximum of $15,000 per annum, and a maximum of $30,000 per person into their superannuation to assist in saving for a deposit.
Buyers will be able to salary sacrifice contributions directly into their super and then withdraw the amount plus any gains made to put towards a deposit.
However the measure is not going to have a significant benefit for most first home buyers looking to purchase within 15km to 20km of the city, as the market will move too fast for these savings to assist in a meaningful way. It will provide better value for more affordable value further out from the CBD’s of major cities.
The best thing government can do to assist first home buyers is reduce or remove the upfront costs associated with buying a house. The Victorian government has done this with the removal of stamp duty for first home buyers purchasing property under $600,000. If the federal government wants to make life easier for first home buyers, this is the type of policy they should adopt.
One big picture benefit of a policy like this is to get younger people to be more engaged with their superannuation. It could represent a shift in mindset from superannuation being something out of sight and out of mind, to being something younger people engage with on a regular basis.
Charges to foreign owners who leave properties vacant
Although the intention of this policy makes sense, it doesn’t go far enough in achieving what it sets out to do.
Under the policy, foreign owners who leave their property vacant for at least six months of the year will be charged an annual levy. The amount will be equivalent to the foreign investment application fee. These fees range in value depending on the value of purchase. For example, property under $1million attracts a $5,000 fee; property that’s more than $1million and less than $2million attracts fees of $10,100.
While it is good to see a measure to encourage those foreign owners who are holding vacant properties to either lease or sell them, this levy won’t be enough. If a foreign investor has enough money to buy a property and not worry about generating an income to subsidise the mortgage, they won’t be concerned about this fee. It would have to be much higher to incentivise owners to lease.
Changes to negative gearing
Yes, you read right. Changes to negative gearing will be made. Again, the budget is only fiddling at the edges rather than making any substantial changes.
From July 1, landlords will only be able to make deductions of items they have actually purchased, not items that previous owners have bought.
Investors will also not be able to claim travel costs incurred when inspecting, maintaining or collecting rent from a property.
Negative gearing is a hot button issue at the moment, and the government is really only implementing these measures as a way of being seen to be doing something. The effect these changes will have to the motivation to invest is negligible. The most it will do is likely force some property owners to better plan their holidays to location where they have investment properties.
Overall, the measures proposed in this budget regarding property are going to be largely ineffective. There are some positives, but there is little in the way of immediate, practical impact on buyers’ ability to purchase property.