Federal Budget Impact on Property Markets

Monday, October 19, 2020
Federal Budget Impact on Property Markets

Written by Hudson Adviser Michal Park

DIRECT

First Home buyers

An extra 10,000 places in the federal government’s First Home Loan Deposit Scheme (FHLDS) will be available to first-home buyers this financial year, although the additional places are limited to new home builds. 

The scheme allows eligible first home applicants to purchase a home (within certain price restrictions based on location) with a deposit of just 5 %, without paying lender’s mortgage insurance with the federal government guaranteeing up to 15% of the loan.

The Scheme’s price cap has been extended to $950,000 for Sydney, $850,000 for Melbourne, $650,000 for Brisbane, and $550,000 for other capital cities and regional centres across Australia.

Originally, 10,000 places were made available in the FHLDS for the 2020-21 financial year, with all 5,000 non-major lender quota places filled within the first three months of the financial year.

The opening up of new places in the scheme does have a tighter set of requirements than the initial scheme, restricted to the building of a new home or purchase of a newly built home, which was not a requirement of the original scheme.

Mr Frydenberg said the additional guarantees will be available until 30 June 2021 “and will drive more construction and support jobs as part of our economic recovery plan”.

The FHLDS can be used in conjunction with the First Home Super Saver Scheme and HomeBuilder grants, as well as relevant state and territory grants and concessions.

Below are some comparisons regarding the impact of the scheme:

Granny Flat tax exemption

To be implemented as of 1 July 2021, the Granny Flat Tax Exemption means capital gains tax will not apply to formal granny flat arrangements providing accommodation for older Australians, or people with disabilities. It will only apply to arrangements between family members, or people with other personal ties.

No change to negative gearing

The Federal Budget 2020 has not introduced any changes to negative gearing. This is particularly crucial due to landlords facing challenges amidst COVID-19 residential rental law changes.

Social housing

The federal government has also indicated that it would be extending its guarantee for the National Housing Finance and Investment Corporation by a further $1 billion, which will go towards the construction of more affordable housing.

Indigenous Business Australia will also receive an additional investment of $150 million to extend the Indigenous Home Ownership Program.

This will deliver 360 construction loans in regional Australia, assisting Indigenous Australians into home ownership.

(Labor announced in its budget reply that it would invest $500 million to accelerate repairs on exisring social housing if in government)

INDIRECT

Tax cuts

The federal government is bringing forward the second stage of the already-legislated personal income tax cuts, which will benefit about 11.6 million Australians. 

The tax cuts will be backdated to 1 July this year instead of July 2022.

Middle-income earners will receive tax relief of up to $2745 for singles and $5490 for dual-income families this year compared to 2017-18 rules.

A one-off additional benefit, worth up to $1080 per individual, will be also available to more than 10 million taxpayers.

Putting more money into the pockets of Australians will help prospective home buyers break into the property market sooner than expected, as they will be able to save more towards a home loan deposit as well as secure more finance.

The tax breaks will also help existing home owners to pay down their mortgages sooner.

New infrastructure

A number of road, rail and transport upgrades will help boost local economies and job prospects across a number of Australian regions. Depending on the nature of infrastructure projects, surrounding housing markets could see a rise or fall in demand. Much of this year’s infrastructure allocation is in roadworks, which can have positive impacts on nearby housing by increasing accessibility to an area, but devalue properties with exposure to high traffic intensity, construction and noise pollution.

The Federal Budget 2020 committed to $7.5 billion on National Transport Infrastructure, which will improve business processes and human capital movement. Projects include:

  • Queensland: $750 million for stage one of the Coomera Connector project;
  • New South Wales: $560 million for Singleton Bypass on the New England Highway;
  • Victoria: $528 million for Shepparton and Warrnambool rail line upgrades;
  • South Australia: $200 million for Hahndorf township improvements;
  • Tasmania: $150 million for the Midway Point Causeway and Sorell Causeway;
  • Northern Territory: $120 million to upgrade the Carpentaria Highway;
  • Western Australia: $88 million for Reid Highway Interchange with West Swan Road;
  • Australian Capital Territory: $88 million for the Molonglo River Bridge.

The investment comes on top of the $100 billion over 10 years previously foreshadowed. 

There has also been an additional $3 billion committed to shovel-ready jobs, which includes $2 billion for small-scale road safety projects and $1 billion for the Local Roads and Community Infrastructure Program.

Job security for renters

Having born the brunt of COVID-19 job losses, the federal government is offering incentives to encourage businesses to hire eligible young job seekers, under its JobMaker hiring credit scheme. 

For the next 12 months, eligible employers will receive $200 per week for new employees aged 16-29 and $100 per week for new employees aged 30-35. 

This measure will bolster job security for COVID-hit young Australians, many of whom are tenants who are currently struggling to pay their rent. This measure could help maintain demand in Australia’s rental market as fewer tenants will be forced to move out of their homes due to rent arrears.

Responsible lending laws relaxed

Up-sizers and down-sizers would likely see the most benefit from proposed changes to responsible lending laws flagged in budget documents.

Treasury’s budget overview said removing responsible lending obligations for most products – including home loans – would “streamline” the credit application process and “allow eligible borrowers to obtain credit faster”.

Interestingly, those in the property market, Federal Budget 2020 papers reveal Australians still believe in the dream of homeownership and the security it brings. This is reflected through taxation receipts estimates for property income, from a -14.3% loss to a significant rebound of 13.5% in 2021-22.

This shows that the Federal Government is confident in the property market; that all fiscal policies introduced in Federal Budget 2020 will, directly and indirectly, have a multiplier effect on the property market and will result in a surge in property demand between now and 2021-22.






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