Snapshot Of The Federal Budgets Impact On Your Property Planning

Key points

  • Last Tuesday night the Federal Budget was released with a raft of measures targeted at housing affordability
  • We have outlined the basics as they relate to foreign buyers, affordable housing, first home buyers, downsizers, APRA, infrastructure, immigration, and negative gearing.

If anything is too big to fail, it is the property market. The big banks have been slugged with a $6 billion tax over 4 years, but the government has merely chiselled away at housing affordability, as opposed to taking the proverbial chainsaw to it.

The government’s view is that there is too much to lose if property values plummet. We concur when you consider that one in three jobs in Australia have a direct or indirect link to property, two out of three households own property and the value of the property market is $6 trillion (almost four times the national gross domestic product and share market).

The chisel however may be enough to garner the desired result of slowing down the growth in property values in Sydney and Melbourne. The adjustments to negative gearing rules could prove to be the straw that breaks the camel’s back. In particular the inability to claim depreciation on plant and equipment items that were pre-existing when the property was purchased. Plant and equipment items currently form a substantial portion of what an investor claims, and will be wiped away for future properties unless the current owner purchases the item themselves. What we are talking about here are items such as dishwashers, dryers, curtains, ceiling fans, ovens.

Below we outline the key housing affordability related measures from the Federal Budget.

Reduce Demand

  • Foreign Buyers – reduce the number of Foreign Buyers through an increase in taxes and by restricting the number who can purchase in any given new development. See my Blog for more on this topic.
  • Regulation – Increasing APRA’s authority to regulate lending of non-deposit taking lenders and via location, the flow-on effects will make it harder to access lending for some people and properties.
  • Immigration – Reducing employment available for foreign workers and taxing employers of foreign workers
  • Negative gearing – Removing the availability of deductions for travelling to an investment property, and targeting the claiming of depreciation of plant and equipment for items that were pre-existing prior to the purchase of the investment property.

Increase Supply

  • Downsizers – Those over 65 have been incentivised to sell their home, which will put more properties on the market, often in locations where supply is very low. See my Blog ‘Are Baby Boomers Set to Be Incentivised to Downsize?’ for more
  • Affordable Housing – Increase the number of affordable housing projects through investment incentives
  • Free Up Land – In the West of Sydney and Melbourne, where significant quantities of land are to be made available for development

Provide Assistance

  • First Home Buyers – encouraged to save for their first home via a 30% tax deduction.
  • Low income and homeless – provided with extra support to assist with the cost of living and housing, including pledging $375 million to the new National Housing and Homelessness Agreement
  • Infrastructure – improvements to public transport and roads, one of the goals of which is to alleviate commute times.

Although the budget is yet to pass through Parliament, it is a centrist and populist budget which has rankled those on the right of Liberal politics. It has been dubbed a ‘Labor-lite’ budget and it is likely that much of the policies will pass through the Senate.

Contact us to discuss how the Federal Budget could impact your personal situation.

All the best with your Property Planning!

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