The Federal Budget was announced last week and as expected, housing affordability was a top feature. Today, we will go through the four major announcements that most affect property.
While the Government said that they will not be making any changes to negative gearing, this isn’t entirely true. If passed, investors will no longer be able to claim depreciation on plant and equipment expenses unless the property is brand new or they purchased the plant and equipment themselves. So, if you purchase an established property then you will only get the building allowances for depreciation.
This is a big deal and can be worth $6,000 – $7,000 in deductions per annum in the initial years, which would be the difference between a negative cash flow or a positive cash flow property.
This change in depreciation will certainly cool the demand from investors in the established property market; whilst we do expect some of that demand to move towards new property, we believe that there will be a reduction in investor appetite overall.
For those of you who already own property, then there’s no need to worry. This change will be grandfathered, meaning it will only apply to properties purchased after the date this policy is introduced.
Nyko Verdict: Negative, unless you’re the properties first owner (i.e buying new or off the plan)
As well as deprecation changes affecting investors, foreign investors have also been hit.
Only 50% of properties within a new development can now be sold to foreign investors. There will also be a 10% increase to application fees, and most importantly, an annual vacancy fee, which has the awesome name ‘the ghost tax’, which will cost any investor that leaves a property vacant for more than six months at least $5,000.
Nyko Verdict: Positive. The ghost tax should free up rental properties and the 50% cap on foreign investors for new projects will mean locals have a fairer chance at buying within those developments.
FIRST HOME OWNERS
There’s good news for first home owners, who will be given the opportunity to pay extra into their super to save for a house deposit. It’s important to note though that this only applies to funds they pay above the 9.5% super guarantee currently in place.
First home owners can put a maximum of $15,000 per annum into their super, and it can be pooled with a partner, meaning $30,000 before tax each year. These funds will also be taxed at a lower rate of 15%. The funds will not go into your super fund per se, they will go into a fund that will grow at the nineny-day bank bill rate plus 3% which is a nice boost.
Nyko Verdict: Neutral. Well-meaning, but not likely to have a major impact.
Bank tax will have an impact on all of us, with the five biggest banks likely to be slugged $6.2 billion over the next four years or so.
While this is certainly welcome, we all need to be extremely wary as banks of course have a habit of making consumers pay for any increase in their costs.
Nyko Verdict: Negative. Likely to be passed onto consumers (almost wrote positive, we do like to see the banks squirm a little!)
So, just a quick recap on the Budget. It’s hard to know exactly what will and won’t be passed in the senate at this point, but we will keep you updated as it progresses.
To find out more about the Budget, get in touch with Nyko today. Call us on 1300 720 315.