2017-2018 Federal Budget, so what does it mean for Moonee Valley?
On Tuesday 9th May, the federal government announced in the Budget a number of policy initiatives designed to alleviate perceived housing market imbalances. These included allowing first home buyers to save home loan deposits through superannuation accounts, superannuation incentives for downsizers to sell larger homes and financial penalties for foreign investors that leave investment properties vacant. The government also announced a number of specific initiatives designed to directly increase the supply of new housing.
One of the changes deals with restricting foreign ownership of new developments with steeper charges applied to purchases, less favourable tax treatment and charges on those with empty properties, aimed at taking the sting out of the housing market. From Tuesday, for foreign buyers to be slugged a fee for having a property that sits empty for six months or more in a year. Those who don’t have a tenant in their property, or live in it themselves for a lengthy period of time, will be expected to pay an annual charge equal to their foreign investment application fee.
Another substantial change and one likely to attract the anger of developers is a restriction on how many properties in new developments can be sold to foreign buyers. The changes will mean at least 50% of new homes must be sold locally in any one development.
To encourage property owners to downsize, the government has introduced an incentive for them to sell their homes. Homeowners aged 65 and over selling a home they have lived in for 10 or more years will be able to make a non-concessional contribution of up to $300,000 into their superannuation from the proceeds of the sale. If these downsizers do sell, it would free up larger homes and housing stock for younger families upgrading.
With Moonee Valley being prime real estate for families, they will have more choice in the market and we may see auction clearance rates pull back slightly later in the year if these older homeowners do decide to take on the incentive.
The changes also attempt to dampen demand by addressing the imbalance and abuse of deductions in the taxation system for rental properties. Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed from 1 July 2017. Plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential real estate properties from 1 July 2017. Outside of these changes, negative gearing the capital gains tax concession remains untouched.
The budget deals with the affordability issue through introducing a saving initiative for first-home buyers. From 1 July 2017, individuals will be able to make extra voluntary super contributions of up to $15,000 a year beyond their employer’s Super Guarantee payments, up to a total of $30,000. These contributions will be taxed at 15% and can be withdrawn to go towards the deposit on a first home, however not until July 2018. This means first home buyers will be able to withdraw their extra contributions to pay for a home deposit and taxed at the marginal tax rate minus a 30% tax offset. While the tax concessions for these contributions may allow them to save a larger deposit, they won’t be able to access their money until retirement if they decide not to buy a home. If first home buyers do take on this initiative, the housing market, especially in the lower end, may consequently see buyer competition increase towards the end of 2018.
Although these measures are welcomed they are unlikely to have a significant short-term impact on housing market outcomes. The continued underperformance of the national economy as also revealed in the Budget will, however, have a more direct influence over the Moonee Valley housing market activity, particularly in regard to the likely future direction of official interest rates.