How July 1st Will Shake Up Australia’s Property Market

June 29, 2024 Luke

How July 1st Will Shake Up Australia’s Property Market

The start of Australia’s new financial year on July 1st is set to bring some major changes for property buyers, owners, and investors. From tax cuts to first home owner incentives, new regulations are going to affect housing affordability and accessibility across the country. 

Tax Cuts Mean Bigger Mortgages for Homebuyers

One of the biggest changes coming on July 1st is a reduction in income tax rates as part of the government’s stage three tax cuts. Lower and middle income earners will see their take home pay rise, which will in turn increase the amount they can borrow for a mortgage.

For example, an individual earning the average full-time salary of $98,098 could save around $2,131 per year. This boost to their after-tax income will allow them to qualify for a mortgage roughly $25,000 higher than previously. The impact is even greater for couples, since shared household expenses mean tax cuts effectively double their extra borrowing capacity. 

The tax cuts will be a boon for first home buyers who are typically constrained by borrowing limits. By increasing purchasers’ budgets, the new tax rates are expected to provide a modest tailwind for property prices, especially at the lower end of the market.

Crackdown on Dodgy Rental Deductions

While home buyers get help from the tax man, property investors are facing greater scrutiny. The Australian Taxation Office estimates incorrect rental deductions are costing the government $1.2 billion per year.

Investors often make mistakes like claiming interest repayments on money used for other personal spending. For example, if you take out a $50,000 personal loan on top of your $800,000 rental property mortgage, you can only claim interest on the original $800,000.

Costs for repairs and upgrades are another problem area. Expenses need to be claimed over time rather than immediately, unless they are minor improvements under $300. With investors returning to the market in force this year, the ATO will be keeping a close eye on their tax returns.

More Support For First Home Buyers 

Several government schemes to help first home buyers onto the property ladder will continue into the 2024-2025 financial year. 

The First Home Guarantee allows buyers to purchase with a deposit as low as 5% by having part of the loan guaranteed by the government. While the number of places won’t be confirmed until July 1st, the program will continue and provide assistance to thousands more Aussies looking to become homeowners.

To be eligible, applicants need to meet income thresholds, have at least a 5% deposit saved, and comply with property price caps for their area. It’s a great way for young people or low income earners to crack into the market without prohibitive deposit requirements.

Energy Bill Relief Arrives

Households across Australia will receive some relief from skyrocketing electricity costs starting on July 1st. 

A $300 rebate will be automatically applied to residential power bills in quarterly installments over the next year. The rebate brings the total relief to around $1 billion nationwide.

Wholesale electricity prices have fallen recently, which led the energy regulator to forecast modest price drops of 1-6% in the coming year. But the rebate will cushion the impact of still elevated costs on homeowners and renters.

New Property Tax for Victorian Businesses

Stamp duty on commercial and industrial property purchases in Victoria will be phased out from July 1st. Any deals settled after that date will instead transition to an annual property tax system over the next decade.

For example, if a retail property is bought next year, normal stamp duty still applies at settlement. Then in 10 years time, the owner will start paying an annual tax of 1% of the land value instead. 

The transition aims to promote business investment by removing the large upfront tax burden of stamp duty. Victoria will monitor the impacts on its own budget and the commercial property market as the changes roll out.

The July 1st property policy adjustments will help both home buyers and investors navigate Australia’s cooling housing market as interest rates continue to rise. Tax cuts and first home owner incentives will support affordability, while clamping down on rental deductions will improve fairness and budget sustainability. It shapes up as an interesting next chapter for Australian real estate.

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