This article was originally published by Duncan Hughes via afr.com.au 28 Dec 2016.
While rising borrowing costs and new superannuation rules will unsettle property buyers in 2017, state and federal tax changes could create savings and investment opportunities.
The property market ends 2016 on a high note with auction markets in Melbourne and Sydney posting high volumes, clearances and increasing high prices, particularly for inner suburbs. “This augurs well for 2017,” says Richard Wakelin, director of buyers’ agent Wakelin Property Advisory. “Do not be surprised if the [Sydney and Melbourne] markets open strongly in mid-February after the six-week summer holiday break.”
Other cities, particularly Perth and Darwin, are expected to bump along with low sales volumes and flat and falling prices unless there is a spectacular turnaround in mining prices leading to a sharp economic recovery, say analysts.
There is also continuing pressure on Melbourne and Brisbane’s central business district high-rise apartments because of slowing demand and an increase in supply as major projects are completed.
Irrespective of property prices, this is a round up of what’s ahead for property investors in 2007 in terms of loans, new legislation and tax changes.
Lenders will turn the screws on borrowers by continuing to raise rates and, in some cases, introduce small print conditions that will add to increasing costs.
New and existing residential property investors with AMP loans, for example, will be paying another 15 basis points from early January. AMP, the nation’s largest diversified financial conglomerate, adds to the long list of lenders, including the big four banks, that have increased rates of more than 130 products since Donald Trump became US-president elect in November. Its new small print condition is a fee – called a secure rate guarantee fee – of up to 25 basis points to lock in the fixed rate.
CBA has said it will reprice interest-only home loans from March 17. Other lenders are likely to follow because of regulator pressure to crack down on interest-only loans because of fears borrowers have no strategy for repaying the principal and could face financial stress as rates rise.
CBA’s new small print condition, which is also being repeated by other lenders, involves changes to the reference rate on interest-only repayments. The bank calculates the interest rate, also known as the annual percentage rate, by starting with the reference rate and adding or subtracting the premium or discount, which is the margin. Some mortgage brokers claim deep discounting by lenders to attract new business will be wound back during 2016.
Those holding property in their self-managed superannuation funds (SMSFs) are being urged to seek expert advice before any “panic” sales of commercial property because of fears changed super rules will increase potential liabilities.
From July 1, the tax-free status of super income generated from pension balances greater than $1.6 million will change. Commercial property companies claim more than one in three sales are by trustees unnecessarily disposing of assets.
“Don’t panic,” says Peter Hogan, technical specialist for the SMSF Association. “There is no requirement to sell off assets.” Pre-emptive sales could cost 3 per cent sales commission, possible capital gains tax and, if another property is bought, stamp duty.
The 2 per cent temporary deficit reduction levy (debt levy) on high income earners is due to expire on June 30, which is an incentive for high earners to defer income (including that from property assets) until after July 1, says Mark Chapman, director of tax communications for H&R Block.
Threats to abolish negative gearing for property investors are on the political backburner and unlikely to resurface during a non-election year, say political analysts.
Stuart Wemyss, a director of mortgage broker ProSolution Private Clients, says: “Low interest rates mean the negative gearing tax benefits that may have enticed investors previously are dramatically less today. Property investors might have to consider other ways to manage or save tax.”
Some states and territories are introducing tax changes over coming months.
For example, in the Northern Territory, first home-buyers of established properties valued up to $450,000 receive a 50 per cent stamp duty discount up to 30 June. It is capped at $10,000.
In Queensland, a new 3 per cent stamp duty surcharge for foreign investors comes into effect on October 1.
Foreign buyers in NSW will be slugged with an additional 0.75 per cent land tax surcharge from January 1.
That is in addition to the 4 per cent stamp duty on all residential transactions.
Foreign investors are also unable to defer the payment of stamp duty for 12 months when buying off-the-plan residential property and do not have a tax-free threshold for land tax surcharges.
In Victoria, the land tax surcharge on absentee owners will increase from 0.5 per cent to 1.5 per cent from January 1.
The tax exemption for land used for primary production in an urban zone has also been extended to land owned by certain family superannuation trusts for 2017.
Changes to NSW strata laws, which were introduced in late 2016, will give apartment owners more rights running, renovating and reselling their properties.
New standards for Victorian apartments intended to ensure high-rise units have sufficient access to light, air and storage will take effect from March.
Real estate agents in Victoria are expected to be under a legal obligation to publish indicative selling prices on listings under changes to be introduced during the coming year.
Under the new laws, agents must provide prospective buyers with market analysis including three recent comparable sales, an indicative selling price and the median price for the suburb.
The Federal Government is also considering – and could introduce new laws – requiring anyone offering property advice to be regulated like financial advisers, which would mean an obligation to ensure transparent, informed and suitable recommendations.