05.31.2017 Tax & Finance

Budget 2017/18: Is any of it relevant to the eastern suburbs?

Budget 2017/18: Is any of it relevant to the eastern suburbs?

Housing affordability was a major focus of the government’s 2017-18 budget. Will the announced changes have any effect on real estate Sydney’s east?

The government’s focus on housing in the 2017/18 federal budget comes as no surprise. Affordability has become a major issue across the country, with buyers stretching their budgets ever further. But will the tax and super changes bring relief to buyers aiming to claim a spot in Sydney’s east?

Greater access to super could ease pressure

One of the biggest changes the government has proposed to support first-time home buyers, as well as older buyers looking to downsize, is to free up access to super funds over the coming year.

A deposit boost for first-time buyers

For first time home buyers, we’re seeing an echo of the previous first home saver accounts scheme with a new plan allowing these buyers to contribute up to $30,000 to their super fund after July, with a limit of $15,000 each financial year. First-time buyers can start to access these savings, along with the interest they’ve earned, from 1 July 2018.

This super access plan should provide at least some support to buyers looking to break into the eastern suburbs. It recognises the fact that the vast majority of these home hunters can’t access the first home owner grant.

A super boost for downsizers

The rules are even more flexible for downsizers, who will be able to contribute up to $300,000 (after tax) to their super fund from the proceeds of their family home. With the current trend towards downsizing already in full swing across Sydney’s east, we’re expecting to hear from more families who want to remain in the area as well as those looking for a smaller property in a suburb they’ve always imagined living in.

While this new scheme will definitely benefit older Australians planning for their retirement, the real aim is to free up housing stock. If downsizers take up the government’s offer, we could start to see movement in some of Sydney’s more tightly held markets, where younger buyers are struggling to gain traction.

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Stricter tax rules for investors

The government is keen to show a tightening of tax rules that currently favour property investment – one of the factors many link to Australia’s current housing affordability issues. Investors will soon lose the flexibility they’ve relied on when it comes to expense claims, depreciation and the Capital Gains Tax discount. Overseas investors will also face a vacancy charge if they don’t find tenants for at least six months out of each year, and are no longer exempt from the main residence Capital Gains Tax.

We know investors are still very enthusiastic about Sydney’s east, even if Brisbane and Melbourne have tempted those looking for higher rental yields at the lower end of the market. So while these changes could dampen investor activity in some Sydney suburbs, we don’t expect them to have any major effect on their enthusiasm for blue chip areas like Paddington, Woollahra, Surry Hills or Darlinghurst.

What about interest rates?

The other key factor when it comes to housing affordability is interest rates, which the RBA has held at a historic low over recent months. Even before the budget, economists were predicting an eventual rise over the next few years from 1.5 to 3%. Now that banks are facing the prospect of a new annual levy and tougher fines, that rise seems even more certain.

The effects of an interest rate rise wouldn’t be uniform across Sydney, but it could discourage buyers already at the top end of their budgets. At the same time, a rate rise would put downward pressure on housing prices over the longer term. Once again, these effects would be less obvious in the consistently desirable eastern suburbs.

The key to understanding these trends and the effects of the 2017/18 budget on your plans as a buyer or seller is to ask for expert advice. To discuss your particular situation and how things could change over the coming months, get in touch with our team today.