Super dip will help first-home buyers save for deposit

The housing market has been revolutionised with efforts to cut investor demand and boost first-home buyers.

The housing market has been revolutionised by the budget as Australia takes the first steps to reduce investor demand and boost first-home buyers.

In places like Sydney and to a lesser extent Melbourne, first- home buyers without parental help have withdrawn from the market. Thanks to Scott Morrison, middle-income first-home buyers can now return to the housing market because couples buying their first house can make tax-deductible superannuation contributions of up to $30,000 each (a total of $60,000) and extract that money (less fund tax and withdrawal charges) from their fund to pay a deposit on a house.

The Treasurer will be blasted by the superannuation industry for this measure, but I’ve been encouraging him to ignore the critics and allow super to be accessed. I am delighted he took my advice and Australia will be a better country and superannuation will be a stronger movement.

And he also embraced the other side of my advice — don’t undertake the superannuation concession on its own or you will boost the price of dwellings and first-home buyers will be no better off. Accordingly, we see a vicious attack on negatively geared buyers and overseas investors. But he is also sowing the longer-term seeds for the next boom.

To explain how first-home buyers are being helped, let’s take a person who is contributing $10,000 a year to super. Starting on July 1, they can allocate that $10,000 towards their first-home deposit (maximum of $15,000 a year). When they contribute that $10,000 they gain a tax deduction but the money is taxed in the fund at 15 per cent and there is a withdrawal tax, which means that after three years they can withdraw $25,780 plus the return on the investment (which is now based at 4.78 per cent). Under this example, two people will gain $51,250 over three years. It is possible to increase the annual contribution to $15,000 and accumulate the money over two years.

This will not help low-income earners but young middle-income Australians get a chance to own their own home via super tax deductions. Not only is this good socially but owning a home or apartment slashes retirement costs: the aim of superannuation.

Before describing the attack on foreign buyers and investors, let me give you a snapshot of what is happening in the Sydney and Melbourne apartment markets.

Right now in Sydney both Chinese and local “off the plan” buyers cannot obtain finance so they are either reselling before settlement or rescinding so losing their 10 per cent deposit. The result is that the number of units for sale has increased sharply so prices in many areas are weaker.

That lack of finance to the Chinese arises because local banks will not finance them and money is hard to extract from China. For local investors, finance is hard to get as a result of regulatory clamps. In Melbourne the pressure from Chinese buyers is worse than Sydney because a large amount of settlements are due on June 30. The non-banking movement is trying to fund as many as possible but there will be a shortfall that will hit some developers and their bankers. Before the budget investors were attacked not only by restricted credit, but clamps on interest-only loans and higher interest rates. In the budget there are further measures to attack investors and lift housing supply. Among the measures are:

• Giving power to bank regulator APRA to monitor credit by lenders outside the banking system. That may hit those trying to fund Chinese buyers who cannot settle.

• Making negative gearing less attractive by limiting depreciation deductions for plant and equipment and disallowing accommodation and travel by investors. These are major deductions.

• An annual charge of $5000 has been applied to all foreign- owned properties left vacant. There are a large number of these properties so stock will come on to the market.

• Increasing the capital gains tax on foreign investors.

It is not surprising that Chinese investors have put large land ­holdings in Sydney on the market.

• From July 2018, people over 65 can downsize and use the proceeds to make non-concessional contributions to their super fund of up to $300,00 ($600,000 for couples) even though they may be over 75 and not working. The government hopes a lot of dwellings will come on to the market.

Meanwhile, new developments must not be more than 50 per cent foreign-owned. This will stop development unless Australian investors and first-home buyers become major buyers.

In Melbourne, new approval rules mean prices will need to rise to justify developments and Sydney land is very expensive, although the Chinese sales will lower land values.

Meanwhile, even before the budget, building activity had started to fall — particularly in Parramatta, Brisbane and Melbourne’s CBD. But as rents rise, the budget actions will encourage first-home buyers to buy and not rent.