Budget 2018: a property investors guide
While Budget 2018 may not contain too many measures directly aimed at property investors, some things in the Budget may affect investors indirectly. We explore how.
What you need to know about the federal government’s recent budget
Anyone hoping that last May’s federal budget would contain a lot about property would have been relatively disappointed. Real estate, particularly real estate affordability, remains one of the hottest of topics in much of the country. However, housing – other than for elderly Australians – was given virtually no attention at all in Budget 2018.
That said, there were some budget measures that will have an indirect but positive impact on property investors, most notably increased infrastructure investment and long-term tax cuts. There were also some measures that may impact property investors in other ways.
Here’s what property investors need to know about Budget 2018:
Infrastructure spending to affect property investors
Over the next decade, the government pledged to spend $75 million on upgrading the country’s infrastructure. This included almost $25 billion in new infrastructure spending.
Key projects that will receive funding include a Melbourne Airport rail link, as well as a rail link to Monash University Clayton campus; a north/south road corridor in Adelaide and north-east road link for Melbourne; a Coffs Harbour bypass for the Pacific Highway and a widening of the M1 between Brisbane and the Gold Coast.
Infrastructure investment is very often a positive thing for new property investors, as well as those who have already bought into the area. It can turn suburbs or towns that benefit from the new infrastructure into property hotspots, as buyers and renters look to take advantage of better accessibility and amenities. This is especially true of new rail or public transport upgrades that reduce commute times.
That said, not all investors will benefit from infrastructure upgrades all the time, especially if it leads to new and busy roads or rail links in once sedate neighbourhoods. The construction of infrastructure can also be noisy and create more congestion, especially in the short-term.
Will tax cuts make negative gearing less attractive?
One of the main features of the latest federal budget was its planned changes to personal income tax. While these tax concessions start small, the government has pledged to drastically overhaul the tax system by 2024. This includes pushing the highest tax bracket from $180,000 up to $200,000 and eventually removing altogether the 37c tax rate that current kicks in at $87,000.
If the government’s plans take effect there will eventually be just three tax rates, zero up to $41,000, 32.5c from $41,0001 to $200,000 and 45c over that. That is a very big ‘if’, of course. As the federal opposition has pledged to scrap these changes, the government must come from behind in polls to win the next election and then keep winning every election until 2024.
Many investors choose property because it affords them the opportunity to take advantage of negative gearing. Lower rates of income tax could potentially mean this becomes less attractive. However, that is a long way off. More important, is that the government has no plans to change negative gearing.
Reverse mortgages to keep seniors in their homes
One development that may have real impact on property prices is the government’s decision to allow anyone over retirement age (currently 65) and who draws a pension to access the equity in their home to meet living expenses. Under the government scheme, pensioners can take a loan against the value of their home to provide up to $11,799 a year if they’re single or $17,787 if they’re a couple, without impacting on their pension payments.
Given that many elderly Australians are asset rich and income poor, a lot currently choose to downsize to free up capital. This could take away some of the impetus to do so, leaving people more inclined to stay put on the family home. When that happens, stock is reduced and the flow on effects across the whole property market can be substantial. That could be good news for property investors who already own but it may make it more difficult to enter the property market for those who haven’t yet done so.
Investors engaged in land banking penalised
Also affecting some property investors is the government’s Budget announcement that deductions such as council rates and maintenance rates will no longer be available where the property consists of vacant land. However, the Treasurer later clarified this, explaining that it won’t apply where there is an operating business on the land. In other words, developers who intend to develop a site won’t be penalised while they wait for a project to commence.
It will, however, have a negative impact on those investors who have bought vacant land near infrastructure investments, such as airports, in the hope that its value will ascend over time.
These are some of the major and minor impacts ways the federal government’s 2018 could impact property investors. If you’re interested in investing in property contact us today.