Real truth about negative gearing changes in the Morrison federal budget

The federal budget captured the concerns about housing affordability, particularly in the capital city markets, so it was inevitable that the volume of measures that were announced would substantially impact the housing sector.

Essentially, the policy announced can be divided into supply and demand perspectives so Townsville investors and owner occupiers can appreciate the depth and breadth of changes affecting their respective situations.

With respect the negative gearing, which the government and some media outlets had claimed were untouched in the federal budget, will have "a major impact on investors", Mr. Beer, CEO BMT Tax Depreciation said in his media release.

Mr. Beer reported; "This change will have a major impact on investors, essentially reducing the annual deductions they can claim therefore reducing their cash return each year. This could lead to investors being in a tighter financial position and may discourage future investors from purchasing a second-hand residential property."

Also, read here further analysis of the federal budget;

Turnbull federal budget could wipe out Townsville property owners
Botched media coverage or Turnbull spin?; negative gearing in federal budget
Townsville government organisations structures damaging to funding pipeline

A summary of the changes include from a demand perspective;

• First home super saver scheme allowing First Home buyers to salary sacrifice their income directly into their superannuation account limited to $15,000 per annum capped at a maximum of $30,000

• Capital gains tax concessions have remained untouched

• Banking industry changes including; change to the Australian Prudential Regulatory Authority (APRA) aimed at minimising investors seeking funds outside the banking sector and in demographic areas of higher risk such as declining regional markets where Loan to Value Ratio (LVRs) are unfavourable

• The big four major banks plus Macquarie will be levied 0.6 percent on bank funding with likely increase in interest rates passed on to borrowers to recoup costs      

Supply perspective:

• Seniors over 65 years of age can now sell their principal place of residence they have lived in for a minimum of 10 years and make non-concessional contributions up to $300,000 into their superannuation account outside the existing caps. 

• The Affordable Housing Agreement with States will be amended to promote better local town planning and to ensure housing targets are achieved from the unchanged funding of $1.3 billion per annum.

• A Commonwealth Land Registry will be created to identify government owned land for residential development. 127 hectares has been released in Victoria for 6000 new dwellings

• Infrastructure spending of $70 billion ($50b more than the last budget) between now and 2021. This is an extensive plan but negligible spend is planned for the Townsville or North Queensland region. Queensland's Bruce Highway repairs amount to $844 million mainly in the Southeast corner.

• Implementation of the Smart "City Deal" aimed to provide better coordination between governments to improve town planning and land management for maximum affordable housing development, currently operating in Townsville, Western Sydney and Launceston

• A new National Housing Finance and Investment Corporation is being set up to provide low-interest long-term funding to community housing, using bond markets instead of the more expensive bank markets aimed at community housing providers such as local and state governments

• Investors will not be able to claim travel associated expenses, likely to impact regional investors the most.

• Claiming depreciation of plant and equipment such as dishwashers, hot water systems, etc.;  Investors can claim deductions only on plant and equipment they purchase directly, rather than plant and equipment purchased by the previous owner. This could impact investment activity in second-hand stock, slowing investment demand but possibly directing investors to upgrade to new stock prompting more unfavourable supply in the market.

• A new $5,000 levy on foreign owner properties left vacant at least 6 months over 12 month period

• Foreign owners and temporary residents are exempt from capital gains concessions

• Developers can no longer sell more than 50% of project stock to foreign investors

Property owners that have purchased assets before the 9th May 2017 will be able to claim depreciation as per normal.

The property owners and investors of Townsville North Queensland have been left with more questions than answers from this federal budget.

With this fresh analysis undertaken by TREN, the property owners and stakeholders of Townsville North Queensland can forge a conclusive understanding of the impact of the federal budget on local real estate investors and owner-occupiers. 

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