After the announcement of the Federal Budget on Tuesday 13th May, we are now beginning to see the potential impact of these changes on many different industries, sectors and markets. One such sector that may be impacted on as a result is the property sector.
Negative gearing escaped the chop for now in this year’s budget. The existing arrangement has been left as is. This is good news for home buyers but may not arguably be good news for the budget. According to Grattan Institute Research, getting rid of negative gearing losses would save the budget around $4 billion per year initially and fall to saving around $2 billion per year over the longer term. Negative gearing has remained untouched despite speculation there would be changes, great news for home buyers and investors.
The Economy
One of the greatest indicators of the property market comes from the state of the economy. Economic growth is forecast at 2.5% next year and unemployment is also expected to rise from 5.8% to 6.25% in 2015, potentially making it more difficult for individuals to enter the property market due to their employment status. There’s also bad news in the ACT property market as well with 16,500 public servants (most coming from Canberra) to lose their jobs. This has the potential to severely hurt the Canberra economy and as a result the property sector with less demand for property and investments.
Families
The largest buyers of real estate in Australia are families, particularly those located in the middle and outer-ring suburbs of large cities and regional areas. For families relying on the Family Tax Benefit (FBT), their spending power and entering the property market will be hindered with changes and restrictions to the FTB-A and FTB-B coming into play. It’s important for families during this time to focus on saving and seeking other forms of finance to assist them in entering the property market.
Schemes and incentives
Staying true to their word on cutting spending and creating savings, the Government also announced it will be abolishing and freezing a number of schemes directly related to the property sector. The National Rental Affordability Scheme, designed to help build new homes for low and moderate income earners has been frozen pending a review. The First Home Saver Accounts where the Government puts in a contribution on your behalf every year has also been abolished, making it more difficult for first home buyers to save for a deposit. The pilot scheme for seniors wanting to downsize their home has also been abolished. The budget forecasts growth in private investment in housing at 7.5% next year.
Infrastructure
The Government announced multi-billion dollar investments into road projects all over Australia. The most important project in Sydney will be the WestConnex. This will be linking Sydney’s west and south-west with the CBD. This is good news for those snapping up properties in Sydney’s west and south-west with the CBD soon to be more accessible via road. The State Government will also receive a subsidy equivalent to 15% of an asset sale if they put the money back into new infrastructure.
Overall, the Budget doesn’t have too much of a direct impact on the property market but its effect may be more indirect. With fewer incentives, less tax benefits for families and an uncertain job market, this is where the property market may be hurt the most. Some forecasters are already predicting the property boom will slow down in the future. Time will tell how much of an impact the budget and proposed changes will have on the property sector after legislation.
If you have any questions about the property sector, please don’t hesitate to get in touch with the team here at Fortis Accounting Partners. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
