Investor incentive: what the 2023 Budget means for property

Housing affordability and the rental crisis has long been a concern in Australia so the government’s response in the 2023 Federal Budget was much anticipated with measures included to create more affordable housing and help more Australians into home ownership.

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Facing the challenges

There’s no denying that the building industry still faces continued high construction expenses and this is a reality we will have to factor into projects for some time yet. The need to reduce costs and make construction more economical is yet to be addressed by the government. However, increased levels of migration and investment in TAFE to grow our national skills base were positive factors of the 2023 Federal Budget and will contribute to helping address labour shortages in the construction industry. There were also a number of key measures that will particularly interest those keen to build an investment property.

Incentives to help address the rental crisis

In response to the current pressures felt by those renters struggling with housing affordability, the budget brought relief with a 15% increase in Commonwealth Rent Assistance. Support for renters also serves to raise investor’s confidence in the build-to-rent sector.

Compared to other countries, the build-to-rent market in Australia is relatively small and new. Overall, the current size of the sector is estimated to be just 0.2% of the total value of the residential housing sector. To stimulate growth in this area, one of the tax breaks for property investors included in the Budget was the increase to the capital works tax deduction or depreciation rate from 2.5 per cent to 4 per cent per year. There was also an increase in the after-tax returns for newly constructed build‑to‑rent developments. 

As reported in the Property Tribune, Mike Zorbas, Chief Executive, Property Council of Australia, feels that the budget has provided a powerful win for good public policy.

“Levelling the tax playing field for build-to-rent projects is a significant one and will allow a welcome new asset class to grow into its full potential across Australia, unlocking up to 150,000 new homes and relieving pressure in the rental market over the next decade.”

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More good news for property developers

The 2023 Federal Budget halved Managed Investment Trust (MIT) Withholding Tax from 30% to 15% on newly constructed, conditional build‑to‑rent developments.

This was one of the key recommendations outlined in a study commissioned by the Property Council of Australia. 

The study revealed cutting the tax would see the number of new apartments developed triple from the projected 50,000 to 150,000 in the next 10 years.* This measure is sure to attract and retain foreign investment in Australia to benefit the build-to-rent sector.

Creating more opportunities to step onto the property ladder

The First Home Guarantee Scheme which previously was only available to married or de facto couples is now open to any two borrowers such as siblings or friends and non‑first home buyers who have not owned a property in Australia in the preceding 10 years. It’s perfect for those who like the idea of shared ownership and paying off their own mortgage rather than being stuck in the rental market. What’s more, if they reside in NSW, they can take advantage of the recent amendments to stamp duty

The NSW Government has introduced changes to the First Home Buyers Assistance scheme with the threshold for stamp duty exemptions for first home buyers being lifted from $650,000 to $800,000 and stamp duty concessions from $800,000 to $1 million. This will commence from July 1st but to be eligible for this offer it’s a requirement to live in the home for at least one year. This is great opportunity for those wanting to own their own home or considering long term property investment for the rental market.

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Reasons to be optimistic

It’s hard not to agree with the positive sentiment expressed in API magazine by Bobby Haeri, Co-Director of The Investors Agency.

“All these announcements are pro-property investing and it’s promising to see that the government has acknowledged the importance of property investors in this country. I believe with over 350,000 people entering the country annually over the next couple of years and interest rates at or near their peak, we will see a promising few years in the property sector within Australia.”

With the demand for build-to-rent houses, alongside various incentives and tax breaks for property investors, plus changes to stamp duty provided by the NSW government, the opportunity is there to invest and be a part of the solution to the housing shortage Australia faces. 

Wondering where to start? Valley Homes can provide the experience and expertise to help you build an investment property whether you’re planning a single dwelling or a multi unit development. We’ll make your investment property dream a reality which in turn will become somebody’s home.

* New tax cuts could deliver 150,000 new build-to-rent apartments, by Rowan Crosby, The Property Tribune, 2/5/2023

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