What impact will the federal budget have on property?

Last night, the Budget was announced by Federal Treasurer Scott Morrison, but what does this mean for homeowners and property investors and what impact will it have on the property industry?

Overall, there will be little change to the property sector, but some of the key highlights that came out of the budget include the following:

Infrastructure, Jobs and Growth

The budget focuses on supporting jobs and growth to help boost the economy. This involves the government investing a record $50 billion in infrastructure investment between 2013-14 and 2019-20 for roads, rail, airports and dams.
$1.5 billion has been reallocated by the Government in funding for Victorian transport infrastructure, which includes upgrades for:
  • The Monash Freeway
  • The Murray Basin Freight Rail
  • The M80 Ring Road
  • Urban and regional roads
In Queensland, $200 million is being invested in the first stage of the Ipswich Motorway. The Melbourne to Brisbane Inland Rail will also receive an additional $594 million in equity funding.

For Sydney, the Government is also committing a further $115 million to continue preparatory activities at Western Sydney airport.

This infrastructure spending comes as good news for owner occupiers and investors of property close to both Melbourne and Sydney metro links as well as close to Sydney’s new airport site located in Badgerys Creek in Western Sydney.

The rail link between Brisbane and Melbourne could also be good news for those in more rural areas who would benefit from increased accessibility through new rail links.

Unemployment is expected to fall slightly to 5.5 per cent and remain there. Jobs growth is likely to sit within retail, hospitality and industries where average families spend their money, whilst mining investment will continue to fall making jobs here harder to come across. As a property investor, it is best to avoid buying property in mining towns, with the housing construction market expected to slow down further. Instead, look at strong markets including Sydney and Melbourne as well as Brisbane which are all seeing good amounts of infrastructure spending.

The Consumer Price Index (CPI) is also expected to rise by 2 per cent, whilst wages will rise by 2.5 per cent. And with inflation set to increase by only 2 per cent, there will be more deals to be had and more money in your pocket.

Near-time economic growth is also being supported by household spending, investment in housing and exports. And with the historically low interest rate environment with the cash rate falling yesterday to a record low of 1.75 per cent in a bid to head off falling prices and an economic downturn, this will make property investment even more appealing.

Australia’s economy is also growing faster than all major advanced economies and it is forecast to grow by 2.5 per cent in both 2015-16 and 2016-17, and increasing to 3 per cent in 2017-18.

The low exchange rate is also supporting households and businesses through increased trade and tourism.

Negative Gearing

The budget announced that there will be no changes to negative gearing and capital gains tax, with the Treasurer arguing that any changes to negative gearing would increase the tax burden on Australians “trying to invest and provide a future for their families”.

Mr Morrison said that Australians who earn less than $80,000 a year account for two-thirds of investors who make use of negative gearing. “They are teachers, nurses, police officers, defence force personnel, office workers and tradespeople” he said.

Mr Morrison went on to say that, “We do not consider that taxing these Australians more on their investments, including increasing their capital gains tax, and undermining the value of their own home and investment is a plan for jobs and growth.”

However, negative gearing is likely to come up again in the election battle, with Labor planning to restrict negative gearing and halve capital gains tax discount by 25 per cent. However, you will not be affected by this if you buy brand new property such as off the plan and if Labor did come into power, changes are not expected to go ahead until July 2017.

Relieving the tax burden

There’s also good news for working Australians who sit in the middle income bracket. The tax threshold has been lifted from $80,000 to $87,000 and is expected to stop around 500,000 taxpayers facing the 37 per cent marginal tax rate which is the second highest tax rate. Now the lower tax rate of 32.5 per cent will apply.

For more information about the budget and buying a property off the plan, why not give our friendly Property Consultants at iBuyNew a call. They can help you with any enquiries that you might have. Call us today on 1300 123 463.
Published on 4th of May 2016 by Marty Stanowich
Marty Stanowich
Marty Stanowich


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