Budget 2021 vs Property
Housing affordability, an ageless topic which has again has tongues wagging again amid increasing concerns particularly for first home buyers with the rapid increases in property values.
Let’s break this down!
How much of the housing market is still attainable for buyers? High income earners have the advantage in the buyer pool, with CoreLogic data suggesting high-level income earners could afford to purchase at least 85.1% of Australian dwellings as of May 2021. This includes almost 93% of Australian unit stock, and 82% of houses. Middle-income households could attain 57.1% of residential properties, and low-income earners could pay for up to 17.6% of all Australian dwellings based on income.
Reducing housing values to make them more affordable for everyday Australians whilst not putting into jeopardy property values of hard working every day mum & dad investors is a tough one to nut out. This will be a heated discussion of debate for many off the back of the state budget announcement.
One on hand we have the State budget aims to – increase taxes for both homeowners and investors whilst on the other hand the Federal budget aims to – increase accessibility to mortgages and government funded incentives.
The Victorian Labor government has announced that the Victorian budget 2021-22 contains “targeted measures” worth $2.7 billion, including new stamp duty taxes for home buyers and property taxes for investors.
So, what is entailed in the new measures?
1. Increase in stamp duty rate for property transactions with a value above $2 million, which would increase stamp duty payable to $110,000 plus 6.5 per cent of the dutiable value in excess of $2 million.
For example: a property purchase of $2.1m will now incur a stamp duty cost of $116,500 whereas currently it is $115,500.
One could argue that this nominal increase will have a limited impact on people’s appetite for property.
2. New windfall gains tax of up to 50% to be applied to planning decisions to rezone land from 1 July 2022. The total value uplift from a rezoning decision will be taxed at 50% for windfalls above $500,000 with the tax phasing in from $100,000.
3. Stamp duty concessions for new residential property within the City of Melbourne local government area with a dutiable value up to $1 million.
- A 50% concession will be available for new residential properties
- A full exemption will be available for new residential properties that have remained unsold for 12 months or more since completion of construction.
4. The land tax rates for high value landholdings will increase:
- Taxable landholdings exceeding $1.8 million — the land tax rate will rise by 0.25 percentage points
- Taxable landholdings exceeding $3 million — the land tax rate will rise by 0.30 percentage points.
The REIV have come out swinging, advising that the ‘assault’ on property owners with stamp duty and land tax increases will hurt self-funded retirees and worsen housing affordability.
Victorian homeowners, buyers and mum & dad investors will be hit with double digit percentage increases in land tax, stamp duty and a new tax on property investment and development.
REIV President, Leah Calnan said the tax hikes will make Victoria a less desirable place to invest, ultimately harming jobs and the economy.
“The government continues to burden Victorians with increases to property taxes. Property already accounts for more than 40 per cent of government revenue. There is not much more capacity any one sector to absorb further tax burden,” Ms Calnan said.
The general industry consensus is that the increase in stamp duty will have a minimal affect on activity the increase in other taxes such as land tax will flow on as rent increases.
- Single parents, first home buyers and downsizers have emerged as winners here with a budget that aims to get people into the property market sooner. These measures are aimed at helping more people into home ownership, while also trying to entice empty nesters to downsize by extending access to a superannuation contribution scheme.
“We will allow those aged over 60 to contribute up to $300,000 into their superannuation if they downsize their home, freeing up more housing stock for younger families,” said Mr. Frydenberg.
The major housing measures handed down in the Budget are outlined below.
- Family Home Guarantee – Single parents will be given federal government assistance to purchase property. Under this policy, the government will guarantee 18% of a home loan for 10,000 eligible single parents, whether they are first home buyers or previous owner-occupiers. This essentially enables property purchases with a 2% deposit, without the borrower paying lenders mortgage insurance (LMI). Based on a typical entry level Australian dwelling value ($431,194), this could reduce a deposit requirement from around $86,000 to $8,600. Ten thousand places for the scheme are to be provided over four years.
However, low deposits mean more debt. More debt means more interest needs to be paid over the life of the loan. For example: a 20% deposit home loan at a 2.4% interest rate would accrue roughly $121,000 in interest over a 25 year mortgage. The same borrowings at a 2% deposit would amount to around $145,000 in interest.
- First Home Loan Deposit Scheme (new homes) – To be extended by 10,000 places. The initial round introduced at the start of 2020, was extremely popular with first home buyers. The majority of the initial 10,000 places were reserved within two months of its launch.
This signifies just how much of a barrier the deposit hurdle is to accessing housing. The benefits of such a policy are advocated to be two-fold, creating seemingly easier access to home ownership, as well as generating economic activity in the construction sector.
- The First Home Super Saver Scheme – Initially announced in the 2017-18 Budget. The scheme allowed for voluntary contributions of up to $30,000 to be released for first home buyers to be used for the purchase of owner-occupied property. The scheme works by accelerating savings through the tax benefits associated with superannuation. The 2021-22 Budget outlines an increase of these voluntary contributions of up to $50,000 to be released.
- The government will expand the eligibility age for downsizer contributions by five years – The downsizer contribution was announced in the 2017-18 Budget. The measure allows older Australians to make a tax-free contribution to their super of up to $300,000 (each) from the proceeds of selling their home, without being counted toward the contribution cap. From July 2022, Australians 60 and older (as opposed to 65 and older) will be able to access the scheme.
CoreLogic data showed a national price increase of 6.8% in the three months leading to April 2021, an increase of 1% nationally from last month with Melbourne dwelling values increasing by 5.8% in total over this three-month period and 1.3% in April.
Every capital city is recording a rapid rate of appreciation in home values, ranging from a quarterly rise of 8.8% in Sydney to 4.2% in Perth. While the quarterly growth rates are extremely elevated, the rolling 28 day average in the daily CoreLogic Home Value index has started to slow, suggesting momentum is easing across dwelling markets.
REIV figures saw April 2021 had a reported 3277 auctions with a total of 2704 of these sold representing a clearance rate of 82.5%. Fourteen suburbs across Melbourne saw a recorded 100% clearance rate, led by Donvale, Ferntree Gully and Wheelers Hill.
At a suburb level, Reservoir had the most amount of reported auctions for the month at 71 followed by Glen Waverley with a reported 50 auctions. Auctions results remain strong and, in some instances achieving a sale price well above the quoted range, a topic of discussion for another day but a prime example of this was 12 Cantala Avenue in Caulfield North which was quoted at $3m – $3.3m only to be sold for $4.115m. This may seem extreme, however our valuation prior to auction was $4m, so the question marks remain around the quoting practices of several agencies.
Property Management Update
National rents have seen growth in rents over this quarter however unfortunately Melbourne records the weakest growth over the three months to March 21, with house rents up 1.6%, while unit rents were unchanged over the quarter. In addition to providing quick and honest advice during this time so that your property can get through this as best as possible we are consistently looking for ways to improve out leasing procedure so that we can ensure the best results.
Our team have introduced a new enquiry management system that allows us to book more private and public inspections with potential renters. This gives tenants extra flexibility to book a time that suits them and ensures that your property is available for them to view as soon as possible. In turn we are then able to quickly notify anybody else who may be interested and ensure they are aware of a new inspection time being added. This allows us to show off your property to as many potential renters as possible and in turn minimise the vacancy on your property.
We have also been finding a greater number of people who are moving interstate, after waiting for things to settle down they are now ready to move to Melbourne. We have begun doing a lot more video inspections using Facetime and Whatsapp in order to accommodate this so that nobody misses out on viewing their potential new home.
Our Property Management Team prides ourselves on consistently finding areas to grow so that we may effectively manage your property and bring you the best results. It is as important to us as it is to you that your property succeeds in this rental market. If you or somebody you know has a rental property that has been on the market for some time, please feel free to contact Lily on 0437 232 529 for a confidential chat on how easy it is to move to Buyers Advocate Property Management.
The challenging market conditions continue just as we continue to deliver great results for our clients. Here are a few below:
Home purchase – Mont Albert
After narrowly missing out on a similar property a few days prior. We managed to secure this property in a premium pocket of Mont Albert pre-market under a tough drawn out negotiation process. Strong agency relationships enabled us to secure this home for our client well within budget and with favourable conditions.
Investment purchase – Glenroy
An investment with subdivision potential and under $1m. This property has limitless value add potential for our clients as well as the ability to be subdivided and located in a desired location, close to amenities and transport, this house is of a solid condition and consists of a generous floorplan, flat block sits on a prime block of 632m3. This was purchased under strong auction conditions and below our client’s budget.
Home purchase – Burwood East
Sitting proud and elevated, this pristine family home was secured for our clients at a hotly contested auction. Our precise valuation and strategy on the day helped secure this gem which is ideally located close to transport and amenities consisting of multiple living areas and oversized accommodation. The perfect fit for our clients.
Tip Of The Month: Don’t be influenced by agent’s at auctions
If you have been to any auction and you have bid, you most likely would have experienced an agent’s representative standing beside you to “help out”.
Make no mistake, the only reason they are doing this is to gain more money for their vendor. While you need to do your research and ensure you have sufficient funds to be competitive, if you reach your limit, walk away.
Do not be pressured by the agents to bid beyond a point you feel comfortable with. You must have discipline as the last thing you want to do is pay too much for a home you can’t afford. I don’t think the agents will bail you out when you miss a mortgage payment.
If you need professional representation at an auction, make sure to employ a Buyers Advocate.