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What does the Federal Budget meanfor property?

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2015-05-22
There were very few surprises when Treasurer Joe Hockey handed down his second Federal Budget.
A perception of stability was the order of the day as Budget leaks turned out to be true, and nothing much changed to impact the home owners and investors of property. There were a few notable absences – sustainable housing and housing affordability were barely touched.
We know what property seekers were hoping from the Federal Budget. But what did they get?
There was plenty to talk about in our post-Budget Propchat special. News Corp Australia personal finance journalist Anthony Keane, and financial advisor, author and investment specialist Bruce Brammall join us in unpacking – in their words – “the most boring Budget ever”.
Let’s hear what they had to say.
Q1. For all the talk of negative gearing and dipping into super to purchase property – not a lot actually manifested on Budget night. Thoughts ?
Keane was on the ground in Canberra when the Budget was handed down and confesses it one of the quietest Budget nights he’s experienced in his career.
“We saw nearly everything that was coming. It had all been leaked.” After last year’s Budget, Keane supposed the Government didn’t want to upset anybody.
There were no surprises for Brammall either. He says it’s unlikely that negative gearing will be touched with a coalition government – and if it is, there will be fair warning.
Brammall is glad that the superannuation scheme won’t be carried through. “The Canadian scheme was a disaster… All it really did was give people more money and bid up house prices.”
“The fact that there were no surprises for home owners and investors is a positive.”
Q2. Was the decision to abandon a super scheme more a case of politics or policy?
Brammall doubts that the Treasurer and Prime Minister were ever actively considering including the idea of dipping into super to buy property in this Budget. He seems to think it’s for the best: “The problem with governments when they try to make things more affordable, it often has the opposite effect.”
The Victorian government solution of cutting stamp duty for first home owners is a safer option, Brammall says. “I think state governments have a far better handle on this.”
Q3. Hockey says this budget is all about “getting the economy going again”. How does property come into that?

Keane says the small business right-offs are going to help real estate agents directly.
Brammall says they could also help small builders of property who will be able to essentially get instant depreciation on items under $20,000.  “That should, arguably, help to increase supply and demand.”
Q4. Hockey introduced a new application fee for foreign buyers – $5000 for properties under $1 million and $10,000 for properties over $1 million. Is this move going to have an impact on the property market?
Both panelists weren’t too phased by the new application fee. They see it as a small step towards improving housing affordability but not drastic enough to put off foreign investors.
Brammall: “It’s not such a bad thing. You could probably just consider it another stamp duty – a stamp duty that the government is imposing on properties bought by foreigners in Australia. I don’t think it will have a major impact, but it might.”
Keane agrees, saying it’s unlikely the increased tax on foreign buyers will deter them from making a purchase. “Whether it’s five or ten thousand dollars, I don’t think that’s going to have to much difference on the cashed-up foreign buyer looking to target the high end of the market.”
Q5. Housing affordability was noticeable in its absence. Why do you think it was left out? And what are the ways the Budget could address affordability?
Brammall says the two factors that are key to housing affordability are interest rates and supply and demand, and the government can’t touch them.
“There’s talk interest rates might continue to lower, which is good for business, great for borrowers and not so good for making houses any more affordable,” Brammall says.
He says a coalition government wouldn’t want to be seen “playing with the levers when it comes to property”. However, they do have at least one measure in place that addresses housing affordability – the National Rental Affordability Scheme (NRAS).
But both Brammall and Keane agree there’s one sure way to bring down property prices – remove negative gearing. Which brings us to another point they agree on – that it’s unlikely to happen with a coalition government.
Brammall says that because we’re in a property upswing, the Federal Government is very conscious that whatever they do will have a national impact. Despite Melbourne and Sydney markets being the main players, we’re still in a countrywide property upswing. To avoid upsetting this environment, Brammall suggests housing affordability is better tackled by state governments.
Q6. The Green Building Council are concerned about the lack of Budget measures to reduce climate change. What impact might this have on a sustainable property market?

 Keane says there’s a lot of things happening in the sustainable housing and green energy space. “We’ve got the major retail energy companies offering to put solar panels for free on peoples’ roofs.” Battery storage for solar energy is also more readily available.
Brammall is frustrated by the lack of consistency around rebates for sustainable housing. “These programs seem to come and go far too quickly,” he says. “They’ll start something, give massive discounts for it, then chop it off at the knees.”
“It’s not dissimilar to superannuation in that respect. People lose faith and credibility for superannuation (reform) because of the volume of changes that are made.”
Q7. Given that on the property front there wasn’t a lot of headlines – what does this mean for people looking to buy or invest in the next 12 to 24 months?
Keane says buyers and investors should look at their local markets before they take the Budget headlines – or lack thereof – too close to heart.
Brammall says purchasers looking to buy in the next six to 12 months need to be sure of their reasons before they jump in. Ask yourself –  are you buying a home or an investment property?
He says if you’re buying a home and you have to sell in five years, you’ll be buying in the same market. If you’re buying for investment, it’s more important  to understand the marketplace. “You don’t want to be buying at the top of a cycle.”
Brammall encourages people to ask:
Where is the value at the moment?
Is the market sustainable?
“Investment is about one thing and one thing only – money.”

Interestingly, Brammall calls out Brisbane as an “underpriced” market. “It seems to have gone back while its southern state cousins have been putting on 10-15% for the last couple of years.”
For this reason, Brammall says investors should consider buying outside of their home state to find the best deal – especially if your home state is Victoria or NSW.
Q8. Australian politicians are fond of theatrics. What would your prop be if you were delivering a Budget to parliament?
If Keane was in Treasurer Hockey’s shoes, he’d need a pillow, because this most recent Budget was “a bit of a snooze”.
Brammall was a bit more proactive about livening up proceedings. He chose a light saber as his prop to bear in parliament. “It would make for great theatrics, wouldn’t it?”