Property investors should pay close attention now that Labor has won the federal election, as it’s time to focus on the housing incentives they announced during the campaign. These new policies could significantly impact property investors looking to navigate the changing market.
Headlining Labor’s plans are two major schemes designed to help more Australians break into the property market, which could indirectly influence property investors:
Understanding these schemes is crucial for every property investor, as they could shift demand in key markets, influence pricing trends, and create new opportunities or challenges. Let’s look at them in more detail and consider how they might affect property investors in the long run.
The Regional First Home Buyer Support Scheme: What It Means for Property Investors
Property investors should take note of Labor’s Regional First Home Buyer Support Scheme, as it could have a long-term impact on regional property markets and future investment opportunities. This scheme will help 10,000 regional first home buyers each year purchase a home by providing guarantees of up to 15% of a property’s value — a move that could influence demand and property prices in these areas.
For property investors keeping an eye on market trends, this initiative allows first home buyers to secure a home with just a 5% deposit, without paying lender’s mortgage insurance (LMI), which is typically required for deposits below 20%. This could mean significant savings. For instance, Labor estimates that a buyer purchasing an $800,000 property on the Central Coast could save up to $32,000 in LMI costs — a considerable advantage for those entering the market.
The scheme is set to begin in January 2023. To qualify, buyers must:
- Live outside a capital city
- Be a first home buyer
- Live in the house purchased
- Earn up to $125,000 for individuals or $200,000 for couples
- Have lived in the region for at least 12 months
- Meet property price thresholds
What’s particularly interesting for property investors is that, while eligible buyers must initially live in the home, the property can later be converted into an investment property. This transition opens up opportunities for more properties entering the rental market down the line, possibly reshaping regional supply and demand.
However, property investors should keep in mind the tax implications of turning a primary residence into an investment property, especially if it becomes positively geared. Seeking expert financial advice is a smart move to fully understand the costs and benefits involved.
Help to Buy
This new $329 million scheme lets eligible home buyers purchase a property with a deposit as low as 2% while also avoiding high mortgage repayments and LMI.
It does that through a shared equity model, in which the federal government gives eligible Australians an equity contribution of up to 40% of the purchase price of a new home and up to 30% of the purchase price for an existing home.
This results in a smaller deposit, a smaller mortgage and smaller mortgage repayments.
People will be able to buy out the government’s stake in the house over time. Before that point, they won’t have to pay rent for the portion of the home owned by the government.
There are only 10,000 spots available for the scheme every year. That said, you don’t need to be a first home buyer to qualify.
Rather, all Australian citizens are eligible – even if you’re a property investor – as long as they:
- Meet the income cap of up to $90,000 for individuals and $120,000 for couples
- Don’t currently own or have an interest in a residential property
Naturally, price caps apply to the maximum value of the home, depending on the region.
There’s one more catch: as the federal government owns part of your home, it will recover its equity – and any share of the capital gain – when the property is sold.
Looking for a positive cash flow property investment income?
High Income Property can help you find a positively geared property that brings in more investment income than it costs to run. Schedule an online meeting here or call (02) 8007 4001.