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Budget 2017 – Winners and Losers in Property

WINNERS

First Home Buyers
First home buyers will be able to use voluntary contributions to their superannuation to save for a house deposit. Withdrawals will be taxed at a lower rate, but the amount you can contribute is capped at $15,000 a year and $30,000 all up. Both members of a couple can take advantage of the scheme.

In Victoria, the state government will abolish stamp duty for first time buyers of homes valued up to $600,000, make cuts to stamp duty on homes valued up to $750,000, and also double the First Home Owner Grant to $20,000 in regional Victoria.

With the first home super saver scheme, we may see increased demand for property below $600,000. This will push up the prices of houses and townhouses in outer suburbs such as Cranbourne. Inner city suburbs will be less affected, as average prices are typically above $600,000. Developers will also have to compete more agressively for development sites that allow sub-$600,000 townhouses to be built and sold in these outer suburbs.

Downsizers
A person aged 65 or over will be permitted to make a non-concessional contribution to superannuation of up to $300,000 from the proceeds of selling a principal residence owned for the past ten or more years from 1 July 2018.

This is good news for real estate agencies operating in areas popular among downsizers, such as the inner city, as there is more incentive for elderly property owners to sell their home. Developers can also benefit from creating stock in these areas.

Resident Investors
There will be new tax incentives for investing in affordable housing; specific incentives for Managed Investment Trust (MIT) vehicles, as well as a CGT concession for resident investors who invest in these schemes.

Renters
Foreign investors are being slugged with an extra charge for properties left vacant —the Budget proposes an annual levy of at least $5,000 and there will be an increase in their application fees. Combined with the state government vacant tax, these additional costs may bring some rent relief and increase stock available for renters.

LOSERS

Developers
The Budget outlines that foreign ownership of new developments will be capped at 50%. To fund a development project, banks normally require more than 50% of stock to be presold. Given that many new developments, especially high-rise apartments, have traditionally been marketed to overseas buyers, limiting foreign ownership to 50% will put the feasibility of many projects at risk. This effect is compounded when combined with the recent state tax changes, such as the increase in stamp duty on off-the-plan purchases in Victoria. The number of construction jobs available will also decrease.

One silver lining is that, together with the new apartment design standards, we may finally see new stock designed to a higher quality to capture the interest of local buyers, who are now equally important to the success of a development project.

Foreign Investors
Foreign tax residents and temporary tax residents will no longer be able to access the CGT main residence exemption. Grandfathering will be available until 30 June 2019 for properties held prior to 7.30 pm (AEST) on Budget night.

The loss of CGT exemption could push foreign investors to sell their property as most of these investments are negatively geared already. This may eventually lead to disposal of the investment since it is no longer profitable.

Investors
The Government has introduced two new measures to restrict the availability of deductions with respect to depreciation deduction and travel expenses, expecting to save $800 million over the forward estimates.

The restrictions on residential investment property deductions will reduce incentives for buyers to make new investments. The implications are more severe for high income earners, who can no longer claim as many deductions on tax. As there will be less demand for depreciation reports, qualified quantity surveyors may also be affected.

Banks
The introduction of a major bank levy from 1 July 2017 could increase cost of funding for larger banks, which may seek to be compensated by increasing mortgage interest rates.

Credit:
Budget 2017-18
Pitcher Partners Federal Budget 2017-18 Analysis

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