Budget 2017: Property investors hit in housing affordability package

Property investors have been hit with cutbacks while first home buyers entering the residential market are aided.

Property investors have been hit with a string of cutbacks in the budget as parallel measures try to aid first home buyers entering the residential market.

Separately, a minor move to assist seniors in downsizing their family homes has been announced.

Residential investors, especially those who have purchased interstate property, have been hit hardest.

Under severe terms to be introduced on July 1 this year, tax deductions relating to expenses incurred while visiting properties will be completely scrapped

Until now investors could claim a tax deduction on travel costs when visiting a property they owned — moreover, there has been no limit to the number of times an owner could visit each year.

The scale of the deductions which have been written off in relation to property is indicated by the extraordinary estimate of $540m the government expects to claw back from the measure — one of the biggest revenue gains itemised in Treasury’s budget measures.

There will also be a tightening of depreciation deductions for investment properties — including a plan to no longer allow subsequent owners of a property to claim deductions on items purchased by the previous owners of the property — this is another significant item expected to bring in $260m.

On a wider front the broader health of the property market — particularly the apartment market — will be monitored very closely as the government continues a multi-pronged campaign to cool excesses in foreign investments.

Most controversially, the government is to impose a 50 per cent cap on foreign ownership in new property developments. This measure has been framed by the government as a way to ‘increasing the housing stock for Australian purchasers’. However, it is bound to be very unwelcome to developers who specialise in overseas marketing to foreign investors.

First home buyers will however have something to take away from the budget — they will be able to use their voluntary superannuation contributions to build tax protected savings for a home deposit.

The move is a risky measure from the Turnbull government creating a new exemption to taking money out of super which until now had been restricted to cases of severe financial hardship.

Under the plan first home borrowers can accumulate voluntary contributions savings in their super and then withdraw some of those savings to buy a home. The most that can be contributed in one year is $15,000 the cumulative maximum that can be put in is $30,000.

If popular, the measure may do something to assist first home buyers build a deposit — the government expects it to cost $250m from July 2018 onwards.

In contrast, the government’s “home downsizing’’ assistance plan is only expected to cost a tiny $30m.

The measure is extremely limited representing a variation on so-called non-concessional (after -tax) super contributions rather than any allowance in relation to the much broader pension system.

Specifically, the government will allow a variation on the non-concessional caps where an individual over the age of 65 can put in up to $300,000 from the proceeds of selling their home (providing they have lived in the home for at least a decade).

Property investors were also encouraged to support affordable housing schemes through a variation on tax — the Capital Gains Tax discount on ‘qualified’ affordable housing will move higher from 50 per cent to 60 per cent.