What Does The Federal Budget Mean For Real Estate In Australia?

What Does The Federal Budget Mean For Real Estate In Australia?

Sarah Lefebvre
Sarah Lefebvre
14/10/2020 | 5 MIN READ

Last week the Federal Government handed down the biggest budget in Australia’s history. Its focus was largely on getting Australia working and spending again following the economic fallout of the pandemic. There were however a number of direct and indirect benefits for homeowners, investors, renters and buyers that we want to take you through.

First home buyers

The Government has announced they have extended the popular Home Loan Deposit Scheme and have offered an additional 10,000 places to help first home buyers purchase a new or newly built home. This program has been called the New Home Guarantee and has been established to support the Governments economic stimulus measures and create jobs in the residential construction sector.

 

Normally, if a first home buyer saves less than 20% of their deposit their lender will require them to pay lenders mortgage insurance. This is to protect the lender in case the borrower cannot make their repayments, but it can add thousands of dollars to the purchase price. Under this scheme, first home buyers can buy a new or newly built property with a deposit as low as 5% and the Federal Government will guarantee up to 15% of the value of the property. With the large millennial generation aged between 26-37, (the most common first home buyer age group), the Government is hoping this will be popular with them.

 

Based on the up take of the previous First Home Loan Deposit Schemes, this will most likely be highly sought after. However, historically only 20% of first home buyers have bought new or newly built properties so it will be interesting to see if this incentive changes that trend.

 

To find out more about this scheme click here

Property Investors 

It’s what wasn’t included in the budget that’s good for investors. With no changes announced to investment property taxes, investors will be happy. The Real Estate Institute of Australia said, “The Government should be commended for ensuring stability within the sector in continuing the current tax arrangement as they relate to both capital gains tax and negative gearing.”

 

If negative gearing was abolished, it would increase the costs for investors holding a property. These costs would most likely then be passed onto renters which would cause them more pain, something none of us need at the moment. There is also the potential it would deter investors from buying properties and therefore result in fewer properties available for rent. So, in a nutshell no news is good news for investors.

Support for affordable housing construction

In order to support the construction of affordable housing, the budget provided an additional $1 billion to the National Housing Finance and Investment Corporation.

Help for indigenous home buyers 

The budget provided $150 million to Indigenous Business Australia to help them extend the Indigenous Home Ownership program.

 

This will potentially deliver 360 construction loans in regional Australia and help Indigenous Australians buy a property. 

Tax cuts to help the majority of Australians

The Government’s income tax reforms have been brought forward by two years and backdated to 1 July 2020 in the hope they will deliver a major boost to the Australian economy. The good news is, according to analysis conducted by Bankwest Curtin Economics Centre, ‘three quarters of Australians will be better off under the Government’s budget1”. 

 

What does this mean for the real estate sector? By giving taxpayers more money in their back pockets each month it will have the flow on effect of helping renters cover the cost of their rent and living expenses. It will ease the strain on homeowners who may be finding it hard to make their home loan repayments and for those looking to buy a property, having extra money to add into their savings can only be a good thing. 

 

To find out more about the tax cuts and what they mean to you click here

JobMaker hiring scheme 

A key element of the Federal Budget is its JobMaker scheme, designed to get young Australian’s back into the work force. It is hoped that the JobMaker hiring credit scheme will support up to 450,000 jobs for Australians aged between 16 and 35. With 40% of jobs losses due to COVID-19 affecting those under 24, this is likely to be a welcome measure for many young Australians.

 

As John Frydenberg said, “having a job means more than earning an income, it means economic security, it means independence, it means opportunity.”

 

From a real estate perspective, this may mean more people are in a position to rent a property. Since the start of COVID, many renters who have lost their job or have had their hours reduced have been forced to move back home. Through employment this trend may reverse. We may also see the younger workers remaining at home but using this time to save for a deposit on their first property. 

Investment in Infrastructure

A major element of the budget was the focus on a $10 billion infrastructure spend over 10 years. This will obviously create thousands of jobs, as John McGrath highlights in his article this week. However, given the focus of this spend appears to be on new roads it will also help reduce commute times, boost local employment opportunities and ensure the more affordable outer city ring suburbs are more accessible and attractive to both homeowners and renters. 

 

Keep in mind this also may negatively impact the value of some properties if they are affected by high traffic intensity, construction and noise pollution.

A final word

The Federal Government has rolled out a number of incentive packages this year in an effort to support Australians through COVID-19. In addition to the budget, we may find there is more support coming our way, with talk about extending the HomeBuilder scheme beyond 2020 and potentially a further drop in interest rates. Housing doesn’t exist in a vacuum and while there were few direct budget incentives for current homeowners in the recent budget, the indirect benefits are certainly positive for homeowners, investors.

 

Disclaimer
McGrath Limited and its subsidiaries, together with their directors, officers, employees and agents have used their best endeavours to ensure the information passed on in this document is accurate. However, you must make your own enquiries in relation to the information contained in this document and seek advice from your financial advisor, broker or accountant to ascertain its application to your circumstances. 

 

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1. https://www.smh.com.au/politics/federal/almost-everybody-is-better-off-with-the-tax-cuts-modelling-shows-20201009-p563ka.html