The Sydney market is not equally affected by interest rate increases, so it can be quite challenging to predict how rising interest rates will affect the Sydney property market. Over the past few months, buyers’ activity has increased significantly, with prime real estate across Sydney East changing hands at record prices. And auction clearance rates are above 70%.
In the Federal Budget for 2023/24, the government will do its utmost to alleviate the mounting pressures that households and businesses are experiencing as a result of rising costs of living.
Among the initiatives outlined in the budget are reductions in healthcare costs, an increase in income support payments, a reduction in electricity bills, and incentives for renewable energy investments, all of which are intended to assist in achieving the objective of the government.
In spite of these measures, the budget still fails to address the critical issues affecting the real estate market. The budget presents little in the way of new initiatives to help stimulate supply or ease rental affordability issues in the short term, due to a strong population growth projection, surging housing costs, an undersupply of rental accommodation, and a bleak outlook for new home construction.
The budget measures that will directly affect the property market
- Expanding Home Guarantee Scheme eligibility
- Introducing tax breaks to encourage more build-to-rent development
- Expanding social housing and affordable rentals
- Rent assistance from the Commonwealth
- Introducing home energy-saving loans
Home Guarantee Schemes Expanded
Federal Budget 2023/24 expands eligibility for Regional First Home Guarantee, Family Home Guarantee, and First Home Guarantee schemes. These programs see the government act as a guarantor on the loan of an eligible participant, allowing them to buy a home with a smaller deposit and without having to buy lenders’ mortgage insurance.
First Home Guarantee & Regional First Home
First Home and Regional First Home Guarantee schemes assist eligible participants to purchase new or existing homes. With this scheme, the government will guarantee part of the buyer’s home loan, allowing them to purchase a home with a 5% deposit. The First Home Guarantee scheme offers 35,000 places and the Regional First Home buyer scheme offers 10,000 places each year.
Eligibility criteria are expanded in 2023/24. Previously, joint applications had only been available to married or de facto couples, along with single applicants. As of 1 July this year, friends, siblings, and other family members will be eligible.
In addition to Australian citizens, Australian permanent residents will also be able to take advantage of this scheme. Non-first-home buyers who haven’t owned a property in Australia in the last 10 years will also be eligible for these guarantees. Financial crisis and relationship breakdown can result in people falling out of homeownership.
Family Home Guarantee
The aim of this measure is to enable a single parent with dependants to purchase an existing home or to design and construct a new home for their family with a deposit of as little as 2%. Each year, there are 5,000 places available under this scheme.
As part of the Family Home Guarantee, borrowers who are single legal guardians of children, including aunts, uncles and grandparents, will be eligible to apply for the guarantee, rather than just single parents who have dependents. Additionally, it will now be available to eligible borrowers who are Australian citizens as well as Australian permanent residents.
Social and Affordable Housing
An extra $2 billion is going to social and affordable rental housing in the 2023/24 Federal Budget. Starting on July 1, 2023, the National Housing Finance and Investment Corporation (NHFIC) will be able to increase its liability cap from $5.5 billion to $7.5 billion thanks to this funding boost. In that way, NHFIC will be able to offer community housing providers more affordable and long-term financing options, enabling them to develop additional social and affordable rental properties
Build-to-RentA build-to-rent development is a residential development built for long-term rent. Large institutional investors, like superannuation funds, often own and fund them. As part of the 2023/24 budget, the depreciation rate will increase from 2.5% to 4%.
This measure will apply to build-to-rent projects containing 50 or more apartments or dwellings. Landlords have to offer a lease term of at least three years for each dwelling and they have to keep the houses under single ownership for at least 10 years before they can sell them. Also, foreigners will pay a lower withholding tax on income from newly constructed build-to-rent houses starting in 2024 from 30% to 15%.
Housing Energy Upgrades
As part of the budget, $1.3 billion has been allocated to establish the Household Energy Upgrades Fund by the Clean Energy Finance Corporation, which will create low-interest loans and fund upgrades to social housing in order to improve the energy efficiency of the building.
A total of $1 billion will be directed to fund 110,000 low-interest loans for home upgrades that save energy, in partnership with private lenders. The Fund will also provide $300 million to states and territories to upgrade energy efficiency in social housing.
Additionally, $36.7 million will be allocated to develop further energy efficiency initiatives, such as expanding and modernizing the Greenhouse and Energy Minimum Standards program.
Increase to Commonwealth Rent Assistance
Commonwealth Rent Assistance maximum rates will be increased by 15% over the next five years with an allocation of $2.7 billion. Under this measure, the maximum fortnightly payment will increase from $208.74 to $240 for 1.1 million households receiving Commonwealth Rent Assistance.
Homelessness
The Budget allocates an extra $67.5 million to states and territories via the National Housing and Homelessness Agreement in 2023/24. This funding will assist with homelessness services.
Urban Development
A national strategy for sustainable urban development in Australia will receive $687.4 million over six years. Funding includes:
- $305 million for the Macquarie Point Precinct and University of Tasmania
Stadium to deliver urban renewal projects in Hobart and Launceston - $211.7 million to establish the Thriving Suburbs Program to provide grants
for community infrastructure in urban and suburban communities through
a competitive grants program - $159.7 million to establish the Urban Precincts and Partnerships Program to
support investment in place-based priorities of local urban communities. - $11 million to establish the Cities and Suburbs Unit within the Department of
Infrastructure, Transport, Regional Development, Communications and the Arts
to deliver the National Urban Policy and the regular State of Cities report.
2021/22 Budget & The Property Market
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