The federal government has released its 2020/21 Federal Budget, with Treasurer Josh Frydenberg describing it as “Australia’s most important [one] since World War II”. But how will it impact the real estate market?
The goal of the 2020/21 Federal Budget is to steer the Australian economy through the unprecedented challenges stemming from recent bushfires, floods and the global COVID pandemic. The success of the government’s economic recovery plan hinges on how quickly budget measures can save existing jobs and create new jobs.
The government is seeking to achieve its job creation goal by incentivising households to spend more by lowering personal income taxes. And by reducing the operating costs of businesses (instant asset write-offs & fringe benefit tax exemptions) so they can retain employees and provide businesses with subsidies to hire new employees (JobTrainer).
Property market implications
A combination of record-low interest rates, a lack of properties on the market for sale, government stimulus and bank loan deferral programs, has seen property markets remain relatively resilient in the face of the challenges caused by the pandemic.
While no single measure contained in the 2020/21 Federal Budget will considerably change the fundamentals of properties markets, there are some essential measures which will, indirectly, help support real estate markets across the country. These include personal income tax cuts, business instant asset write-off provisions, wage subsidies for employers and spending on new infrastructure projects.
The impact of tax cuts
Income tax reforms have been brought forward by two years and backdated to July 1st 2020. This measure lifts the threshold for the 19% tax rate to $45,000 and the 32.5% threshold to $120,000. The government has also decided to keep the $1,080 low and middle-income tax offset for an extra year. This measure is worth more than $12 billion, and the government is hoping that households will spend most of this through local businesses and retailers.
Real estate implications: Tax cuts provide individuals with more money in their back pocket to cover everyday expenses. This will help bring stability to property markets by supporting struggling mortgage holders, assisting those who are saving for a deposit and help those looking to upgrade or purchase another property by increasing their borrowing capacity.
A $4 billion JobMaker package will see eligible employers who hire someone on JobSeeker receive a weekly wage subsidy. It will amount $200 for those under 30, and $100 when aged between 30 and 35.
In addition, the instant asset write-off has been expanded to businesses with a turnover of up to $5 billion. It allows any such company to write off the full cost of any depreciable asset they buy before June 30th, 2022.
Real estate implications: Both these measures provide an incentive for businesses to hire more and retain employees by reducing costs. Employment growth is crucial to the ongoing health of property right across the country, particularly at a time when other government measures like JobKeeper and loan deferral programs wind down. Therefore, if these measures are taken up by businesses, they will have a positive impact on real estate markets.
Additional measures that will directly impact property markets
Other measures in the 2020/21 Federal Budget will have a direct impact on property markets, such as the extension of the First Home Loan Deposit Scheme.
First Home Buyers
The government will extend its First Home Loan Deposit Scheme to provide an additional 10,000 guarantees in 2020-21, taking the total to 20,000. The measure allows eligible first home buyers to build a new home, or purchase a newly constructed home, with a deposit of as little as 5%. This will encourage more first home buyers into the market. Moreover, the price cap on eligible purchases will also be lifted from $700,000 to as high as $950,000.
The government will provide a capital gains tax exemption for granny flats.
Affordable housing developers
The budget allows the National Housing Corporation to issue a further $1 billion in bonds for the construction of affordable housing.
Several new infrastructure projects
Infrastructure is vital to ensure our cities work efficiently and that all Australians are provided with essential services. Well-funded and planned infrastructure helps reduce commute times, increases productivity, boosts local employment opportunities and makes outer-ring suburbs more accessible and attractive. It also plays an important economic role by creating jobs and supporting businesses.
The 2020/21 Federal Budget outlines several new infrastructure projects which will help support the growth of cities, regions and local communities.
The major new national project announced was $2 billion for small scale road safety projects, including roads widening, centre line-markings and safety barriers. Not only this will help improve the safety of local roads and streets, but it will also help boost local economies by employing local SME’s to undertake the work.
New South Wales
The government has allocated $2.7 billion from 2020-21. The funding includes:
$1.8 billion for the Sydney Metro – Western Sydney Airport rail project.
$603.0 million for the New England Highway Singleton Bypass
$591.7 million for the Newell Highway Upgrade
$490.6 million for the Coffs Harbour Bypass
$360.0 million for the Newcastle Inner City Bypass
$120.0 million for the Prospect Highway Upgrade
$94.0 million for the Heathcote Road Upgrade
$63.5 million for the Dunheved Road Upgrade in Penrith
$46.4 million for the Mulgoa Road Upgrade
The government will provide $1.3 billion from 2020-21. This funding includes:
$750.0 million for the Coomera Connector Stage 1 (Coomera to Nerang)
$201.2 million for the Bruce Highway
$112.0 million for the Centenary Bridge Upgrade
$76.0 million for the Riverway Drive Stage 2
$50.0 million for the Beams Road Open Level Crossing Upgrade
$42.4 million for the Mount Lindesay Highway Upgrade
$17.2 million for the Cairns to Northern Territory Border Upgrade
$10.0 million for the Port of Brisbane further planning
The government will provide $1.1 billion from 2020-21. This funding includes:
$227.1 million for Metronet
$87.5 million for the Reid Highway Interchanges
$80.0 million for the Wheatbelt Secondary Freight Network
$75.0 million for the Canning Bridge Bus Interchange
$70.0 million for the Roe Highway Widening and Abernethy Road Upgrade
$70.0 million for the Newman to Katherine Corridor Upgrade
$56.0 million for the Karratha to Tom Price Corridor Upgrade
$48.6 million for the Kwinana and Mitchell Freeway
$41.6 million for the Port Augusta to Perth Corridor
$40.0 million for the Freight Vehicle Productivity Improvements Program
The government will also bring forward $161.4 million to accelerate these projects:
$115.8 million for the Roe Highway-Great Eastern Highway Bypass
$24.0 million for the Freemantle Traffic Bridge
$21.6 million for the Wheatbelt Secondary Freight Network.
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