Budget 2017: How will it impact property?

Posted July 24, 2017

It’s clear that there are winners and losers in this year’s NSW budget. Property investors are often seen as a target for our state government in which to increase revenue coffers, and this year’s release is no surprise. Whilst investors have lost some tax deductible benefits, including travel when inspecting investment properties, foreign investors have been hardest hit, with increased surcharges and fees on top of the already prohibitive costs to buying property in our fair state. So who won and who lost?

WINNERS

FIRST HOME BUYERS

There has been a multi-pronged approach to making first home buyers lives a little easier, with the following changes:

Abolishing stamp duty for first-home buyers on existing and new homes up to $650,000 and introducing stamp duty discounts for properties worth up to $800,000;
Scrapping stamp duty charged on lenders mortgage insurance when it is required for first-home buyers with limited deposits;
Local investors purchasing off-the-plan properties will no longer be able to access stamp duty concessions. This will aim to lessen competition and hopefully assist genuine first home buyers to get into the market somewhat easier.
First home buyers will also be able to use their voluntary superannuation contributions to build tax protected savings for a home deposit. The move is seen as a risky measure from the Turnbull government creating a new exemption to taking money out of super which until now had been restricted to cases of severe financial hardship. Under the plan first home borrowers can accumulate voluntary contributions savings in their super and then withdraw some of those savings to buy a home. The most that can be contributed in one year is $15,000 and the cumulative maximum that can be put in is $30,000.

PUBLIC HOUSING AND THE HOMELESS

Family and Community Services funding has increased by almost $500 million to $7 billion, with $1.1 billion of that to go towards homelessness and social housing services.

$218 million will be put toward maintenance and upgrades of public housing, while another $152 million will pay to improve Aboriginal housing outcomes.

$20 million will go to putting rough sleepers into transitional housing for up to four years and another $19 million will go towards parenting, education, work and health programs aiming to break disadvantage for tenants in the social housing system.

DOWNSIZERS

The new ‘home downsizing’ assistance plan is expected to cost the government $30m.

This scheme will allow a variation on the non-concessional caps where an individual over the age of 65 can put in up to $300,000 from the proceeds of selling their home (providing they have lived in the home for at least a decade). This should provide some relief to those downsizers who are cash-poor but asset rich.

LOSERS

FOREIGN INVESTORS

Announced as a boon to first-home buyers, the Government will increase the foreign investor surcharge from 4 to 8 per cent on housing stamp duty. This may well impact decisions made by foreign investors on purchase price, as this is a significant 100% increase on the existing levy.

Overseas buyers will also pay a 2 per cent surcharge on land tax. Again, a sneaky tax that will be hard to swallow, and particularly by those buyers who fail to notify OSR of their housing status.

Most controversially, the government is to impose a 50% cap on foreign ownership in new property developments. This measure has been explained as a way to ‘increase the housing stock for Australian purchasers’. However, it is bound to be very unwelcome to developers who specialise in overseas marketing to foreign investors.

PROPERTY INVESTORS

Seen an unwelcome changes, from July 1 2017, tax deductions relating to expenses incurred while visiting properties will be completely scrapped.

There will also be a tightening of depreciation deductions for investment properties – including a plan to no longer allow subsequent owners of a property to claim deductions on items purchased by the previous owners of the property – this is another significant item expected to bring in $260m worth of revenue for the state government.

Property investors are also encouraged to support affordable housing schemes through a variation on tax – the Capital Gains Tax discount on ‘qualified’ affordable housing will move higher from 50% to 60%.

Time will tell the long term impact of the budget changes, however for now it’s clear that the tightening on lending (particularly for investors) has had a result, with fewer investors active in the market. Affordability, particularly in Sydney, has put a strangle-hold on the higher price points of the market and we expect a plateauing and cool down in growth for many suburbs, as we revert to a less-frenzied marketplace. With the maximum stamp duty concessions for first home buyers limited to $650,000 we do anticipate this price bracket to remain popular, and potentially with increasing competition in the coming months.

Sought-after pockets of suburbs and particular properties, however, will continue to hold their own, as Sydney remains an active and ever-popular destination for buyers (local and foreign) and investors. High demand areas within affordable price brackets and good proximity to city public transport are a dwindling supply and we expect to see the growing trend of far more apartment and townhouse buyers than freestanding homes over the coming years. Adaptation is certainly necessary as our population demographics change and our notion of what constitutes “home” alters from the traditional quarter acre block.

Jacque