2 May 2017
After months of speculation, the release of the budget this week came with no real surprises. Here’s what you need to know in relation to property.
As expected, negative gearing was kept off the agenda. Even under Labor’s plan, negative gearing would still apply to the purchase of new housing. The opposition’s policy risks creating a two-tiered property market with higher demand for new property, inflating prices above fundamental levels. In addition, the resale market for second-hand property will likely diminish, further exacerbating the potential premium on new property.
From 9 May 2017, the following will apply:
- The introduction of an annual vacancy charge on foreign owners of residential real estate. Foreigners who purchase residential real estate will be subject to an annual charge if the property is not rented out or occupied for more than six months per year
- The introduction of a 50% cap on the total number of dwellings a developer can sell in any given project to foreign investors. This will be applied as a condition on applications submitted after 9 May 2017.
How will this affect you?
The only real impact this budget will have on property investors is that capping foreign investment will make it harder for a development to get off the ground, therefore restricting new property supply. We’ve reported for a while now that the market tends to self-regulate supply and demand. Regulatory interference is likely to limit supply further, which isn’t a positive for housing affordability. Economist Saul Eslake hit the nail on the head when he said it’s ‘much easier for them (regulators) to make housing affordability worse rather than better’ and the government appeared to be toying with ‘more ideas that would make it worse’.
Ultimately, restrictions on foreign investment make local investors, all of you reading this right now, a crucial component in project feasibilities. This gives us great negotiating power when we first acquire a project and allows us to get you some awesome incentives when you purchase. It’s a great time to be in the market.