We’ve had a month now to digest the Federal Government’s May 9th Budget release and the impacts its measures will have on the real estate industry. Housing affordability was an important feature of this budget, with several implications for first home buyers and investors. No matter what your interest in property, we’ve outlined the key measures here.
If you are an Australian investor:
In the lead up to the budget, the media reported a lot of chatter about sweeping changes to negative gearing. Despite this, the Government has chosen to support the property market by maintaining most of the current capital gains tax and negative gearing rules, with two main exceptions.
If you’re looking interstate for investment opportunities, bear in mind that the deduction for travel expenses associated with your investment property has been removed. And if you have previously travelled to inspect your property and also have a bit of a holiday, you can no longer deduct the portion of travel costs relating to your property.
The depreciation allowances have been changed for investment properties purchased from 9th May 2017. Going forward, plant and equipment depreciation deductions can only be made on expenses that you incur personally, or on a brand new property. Plant and equipment assets installed by a previous owner, such air conditioners, dishwashers, carpets and curtains, will no longer be claimable. You will still be able to claim eligible plant and equipment depreciation on assets in investment properties you owned prior to 9th May, and you will still be able to claim depreciation on capital works deductions (for example, the installation of a patio) carried out by previous owners.
The Budget also includes $1.3bn for an agreement to deliver housing supply targets, $1bn towards removing infrastructure impediments to development, and will increase the CGT discount for investments in affordable housing. These measures are designed to both contribute to downward pressure on prices and encourage the development of new housing stock, making housing more affordable.
If you are a first home buyer:
Housing affordability is one of the cornerstones of this budget, and the measures outlined above are designed to make it easier for you to get into your first home. Investors are being incentivised to increase the housing stock available, pushing down prices.
To make it easier for you to save your deposit, you will be allowed to salary-sacrifice up to $15,000 per year for up to two years into your superannuation fund, which you will then be able to access for a deposit at concessional tax rates. These contributions from your pre-tax salary may then also lower your tax bill, meaning more money in your pocket at tax time.
Other measures in the Budget include the promotion of rent-to-buy and other shared equity schemes, and encouraging over-65’s to downsize their family home by allowing them to make a non-concessional contribution of up to $300,000 from the sale into their super fund, freeing up larger houses for families.
If you are a foreign investor:
This budget has made it tougher for you to purchase an investment property in Australia. You will still be required to buy a new property, however developers are now limited to selling no more than 50% of a development to foreign investors. Further, there have been changes to foreign resident’s capital gains tax, with the rate increasing to 12.5% and the threshold dropping from $2m to $750,000. You’ll also want to have a great property manager on board, with homes vacant for more than 6 months incurring a levy of $5,000+.
Overall, the measures introduced in this Budget are likely to have a positive impact on Perth’s real estate market, making properties more affordable and boosting the available supply. The removal of travel expenses will encourage local investors to return to the Perth market, rather than looking to Sydney or Melbourne, and the removal of plant and equipment depreciation deductions should provide a boost for new properties, which is great if you’re pursuing a yield based investment strategy. While you may have some concerns about being out of pocket on second-hand properties, the right older home in a good location will still be a superior investment if you’re pursuing a capital growth focused strategy.
If you want more information about property investing, why not read our Get Ready to Invest in Property eBook.
If you’re not sure what type of strategy would best for you or you would like to learn more about different strategies, why not download our 4 Strategies to Success fact sheet.
Or, if you’re ready to talk about buying your first home, why not complete our Getting Started form to get the ball rolling.
If you’re ready to invest and you’ve got any questions about finance, call us for a free Financial Health Check: 08·9381·7450 or download our Finance Services information.