What the Budget means for your investment property

What the Budget means for your investment property

Posted on Wednesday, May 14 2014 at 12:19 PM

Do you currently own a blue-chip apartment or a three-bedroom pad in the suburbs? You can breathe a sigh of relief – negative gearing wasn’t axed in the latest Federal Budget.

planning to sell their principal place of residence also won’t have to pay
capital gains tax (CGT). At the moment, if an investor sells an investment
property, CGT is calculated. But the family home is the only property exempt
from this tax and will remain so for the foreseeable future.

Another huge win
for investors is the fact that interest rates are likely to remain low for some
time, with inflation forecast to hold steady at 2.5 per cent for the next few

Steve McKnight of
Property Investing says it’s hard to see where the pressure for significant
interest rate increases will come from.

“Real estate
investors have good cause to believe that home loan interest rates will be
stable at current historical lows for some time yet,” he says.

Investors trying
to enter the booming Sydney and Melbourne markets, and other capital cities for
that matter, might also find prices start to stabilise.

McKnight believes
the Budget will probably lead to a dip in consumer confidence and less spending
in the short-term.

“As such, this will
put something of a wet blanket on the property market until at least spring,”
he says.

“The biggest
impact is going to be in Canberra (where there will be job cuts to public
servants.) ACT homeowners and investors need to consider their property positions
and take corrective action now.”

investors thinking about purchasing a National Rental Affordability Scheme
(NRAS) property down the track will have to choose another option. That’s
because the government will be discontinuing round five of the NRAS Scheme,
saving $235.2 million over three years.

“Since its
establishment in 2008, NRAS has delivered 14,575 new homes for low and moderate
income households and was on track to provide 23,8884 more,” Urban Development
Institute of Australia national president Cameron Shephard says.

The scheme will
remain in place for investors who already own NRAS property and funding for
properties already tenanted won’t be impacted. However, uncontracted funding
from earlier rounds, or contracted funding that hasn’t been used within agreed
timeframes, will be returned to consolidated revenue.

Shephard admits
NRAS became too bureaucratic and administrative but he believes there would
have been other solutions, rather than scrapping the program.

“They’ve thrown
the baby out with the bath water,” he says.

“We suggested to
keep the scheme but make it more efficient. Now the Federal Government is
walking away from any sort of public housing and we think that’s wrong.”

The government
has also ditched the Housing Help for Seniors program. The program was
introduced in last year’s budget, to assist seniors who wish to downsize their
home. The axed program saves $173.1 million over five years.

Director of the Retirement Living Council Mary Wood says it’s disappointing.

Australians should be allowed to choose homes that allow them to age in place,
but the scrapping of the Housing Help for Seniors creates less housing choice
and puts more pressure on residential aged care and the taxpayer,” she says.

“However, we
congratulate the Federal Government on a positive initiative that will no
longer subject retirement village operators to double taxation if ownership of
a village changes because of a company acquisition.”

The First Owners
Saver Accounts, which helped first homebuyers save for their first home, was
another scheme scrapped by the government.

But investors
keen to use a Self-Managed Super Fund (SMSF) down the track to purchase an
investment property might soon have more funds to do so.

There will be an
immediate increase in the superannuation rate from 9.25 per cent to 9.5 per
cent, from July 1 this year. It will increase by 0.5 per cent until it reaches
12 per cent in 2022-23.

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