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Tax breaks and buying incentives set to boost residential markets

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Income tax breaks and property-buying incentive measures will put more money in the pockets of Australians following the release of the 2021-22 Federal Budget.

In a budget likely to deliver a boost to property transaction activity in Victoria, the Federal Government has developed assistance packages to aid first-home buyers and single parents to buy a home.

The Government has also opted to continue an income tax break for low and middle-income workers. This should provide broad support for property sales as couples and families earning middle-income salaries are likely to be more than $2,000 a year better off until at least July 2022.

The budget confirmed the Government would provide a $782.1 million housing package over four years to increase homeownership and support residential construction jobs.

The government will also provide an additional $124.7 million to states and territories over two years to support targeted housing projects.

Income tax offsets

Under the changes, tax relief will be extended for another year from July 1 through the retention of the Low and Middle Income Tax Offset.

The tax break is worth a maximum of $1080 for individuals and $2160 for couples and mostly benefits those earning between $48,000 and $90,000 a year.

First-home buyers

Entry-level properties that are listed for sale are on track to benefit from an increase in the First Home Buyer Super Saver Scheme to a maximum of $50,000, up from $30,000 that can be withdrawn from superannuation to put towards a house deposit. This increase comes into effect on July 1, 2022.

There are annual contribution caps applying to how much can be made in voluntary contributions. These amounts have to be saved in super first, under the scheme, before the money can be withdrawn.

Pension loan scheme

The budget includes changes to the Pension Loan Scheme, allowing nearly everyone who owns a property and has reached pension age to take out a “reverse mortgage” from the government, where the balance of the loan is repaid when the property is sold.

Under changes that come into force on July 1, 2022, up to 50 per cent of the maximum annual age pension can be accessed as a lump sum each year. The total amount accessible under the scheme has not changed.

Downsizer contribution

To help make more homes available to young families, from July 1, 2022, those aged at least 60 will be able to make a one-off contribution of up to $300,000 per person, or $600,000 per couple, to their super when they sell a home that they have owned for at least 10 years. The qualifying age is currently 65.

The downsizer contribution allows retirees to move to more appropriate housing as their family size reduces and to turn the capital tied up in their home into retirement income.

HomeBuilder scheme

An estimated $30 billion has been spent or committed to residential construction since the Federal Government introduced the HomeBuilder scheme soon after the coronavirus pandemic first hit.

The HomeBuilder scheme provides grants of up to $25,000 for new builds or renovations. However, the Budget papers say strong housing market activity is “not expected to be sustained.”

Australians have made more than 120,000 HomeBuilder grant applications, four times more than what was originally expected.

But having brought forward a large amount of construction demand, the work is forecast to reduce over coming years, with dwelling investment expected to decline by 2022-23.

Family Home Guarantee

One brand new incentive in the budget is the Family Home Guarantee (FHG). The guarantee allows single parents with a maximum annual income of $125,000 to purchase a new or existing home with a minimum deposit of 2 per cent. It is available for property purchases of up to $700,000 in Sydney and $600,000 in Melbourne.

The scheme will provide a limited 10,000 places over four years. However, if the uptake is strong, the government may add more places. The scheme starts on July 1.

Economists estimate that a single parent earning $125,000 using the FHG would be able to borrow about $500,000 at current interest rates to purchase a home.

New Home Guarantee

The government has also extended and renamed a scheme where first-home buyers with a maximum income for couples of $200,000 can purchase a home with a deposit of just 5 per cent.

The price ceilings for the New Home Guarantee are $950,000 in Sydney and $850,000 in Melbourne, with 10,000 places becoming available from July 1 to those seeking to build a new home or purchase a newly built home.

Hefty support for housing

The budget confirmed the government would provide a $782.1 million housing package over four years to increase homeownership, support residential construction jobs, and enhance housing data.

The government will hand a further $124.7 million to states and territories over two years for social and community service workers in the housing and homelessness sectors, and to help states with social housing.

However, the budget papers say that slowing population growth and a preference for outer-suburban, spacious, detached housing could limit demand for apartments and curtail unit construction in the coming years.

“As the outlook for elevated levels of detached house construction unwinds, slower population growth is also expected to limit demand for higher-density dwellings in coming years, such that the recent strength in housing market activity is not expected to be sustained,” the papers said.

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