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Jobs and housing remain a worry for RBA

The Australian dollar surged to a two-year high after the Reserve Bank delivered an optimistic assessment of infrastructure investment, government spending and household consumption on Tuesday.

But concerns about consumers battling with rising electricity prices, underemployment and torpid wage growth were highlighted by the board in the minutes of its July meeting as some of the reasons for leaving the cash rate at the record low of 1.5 per cent.

While displaying a reluctance to follow the US Federal Reserve and the Bank of Canada in raising the cash rate, the board’s minutes showed the strongest sign yet that the next rate move will be up.

The board said a “neutral” cash rate of 3.5 per cent would be the point at which stable inflation and economic expansion were likely to meet.

The Australian dollar hit its highest point since May 2015 at US79.04¢ following the release.

On housing, the board said conditions in Melbourne and Sydney, where prices have risen by 14 per cent and 12 per cent over the past year, had softened recently, while house prices in Perth and apartment prices in Brisbane had fallen further.

In what could be seen as a warning on a future housing downturn, the board noted “several periods in the preceding decade in which housing prices had fallen, or growth had slowed significantly, in different parts of the country”.

Members said it was too early to tell if the crackdown on home investor lending by banking regulator, the Australian Prudential Regulation Authority, had had their full effect. The regulator launched a string of tough new measures in April designed to slow house price growth and help address the risks associated with rising levels of indebtedness.

On wages, the board offered up some optimism for workers by noting the Fair Work Commission’s 3.3 per cent increase in award wages.

“[This] was likely to affect the wages of around two-fifths of workers,” the board said after adding the unemployment rate had declined by 0.3 percentage points over the previous two months, to its lowest rate since early 2013.

The board noted that wholesale electricity prices had risen sharply over the first half of 2017 and that this had led to significant increases in prices for customers, highlighting “efforts to address climate change, policy uncertainty and its impact on the investment decisions” as contributing factors.

In June, EnergyAustralia announced it would increase electricity prices in Sydney by 19.6 per cent – or $320 a year – from July 1.

We would need to see an upgrade to wage and inflation forecasts to put rate hikes on the table any sooner than 2018.

Commonwealth Bank economist Kristina Clifton

Globally, the RBA remained positive, highlighting the resilient Chinese demand for commodities and the temporary slowdown in the US economy in the March quarter, with consumption starting to pick up again.

Analysts remained sceptical of any rate hikes before next year.

“Today’s minutes seemed to have a more positive tone overall, with the RBA acknowledging recent strength in the labour market and the generally positive flow of data for the June quarter,” Commonwealth Bank economist Kristina Clifton said.

“[But] we would need to see an upgrade to wage and inflation forecasts to put rate hikes on the table any sooner than 2018.”

Capital Economics’ Paul Dales said the minutes of July’s meeting suggested the RBA was not itching to follow other central banks by raising interest rates in Australia.

“If we are right in thinking that rates won’t be raised until 2019, the Australian dollar may yet fall from $US0.78 to $US0.70,” he said.

Source: http://www.smh.com.au/business/the-economy/jobs-and-housing-remain-a-worry-for-rba-20170718-gxde3l.html

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Interest rate hikes: How an RBA increase would affect your mortgage repayment

The Reserve Bank kept rates on hold this month, but experts are increasingly pointing to rate hikes in the near future. For Australia’s indebted property owners this could mean paying hundreds of dollars more in repayments every month.

But now the market is at a tipping point. Experts are predicting significant interest rate hikes, and they have the potential to hit hard – particularly for speculative property owners who over-extended themselves during the boom.

Those who haven’t factored in rate rises to their household budget could see themselves in hot water, suddenly needing to find hundreds of dollars extra a month.

Ex-RBA board memberJohn Edwards recently predicted eight rises in the official cash rate in the next two years to bring the official cash rate to 3.5 per cent from the current 1.5 per cent.

Thankfully, most lenders currently assess borrowers against a minimum rate of 7.3 per cent – about 3 per cent higher than most applicants’ rates – to ensure they can afford a loan if rates moved, Mortgage Choice chief executive John Flavell said.

If you’re worried about a bubble the last thing you’re going to do is put up rates.Alan Oster, NAB

“While some borrowers may find themselves in ‘mortgage stress’ after a few rate increases, for others, rates would have to increase significantly before they start to feel uncomfortable,” he said.

Higher rates could see some borrowers required to pay hundreds of dollars more for their mortgage.Higher rates could see some borrowers required to pay hundreds of dollars more for their mortgage.

Their research found a third of Australians said they’d need to see rates jump by “at least 2 per cent” for a considerable impact to be felt.

For someone with a modest $300,000 loan, repayments could jump by $366 a month if rates moved from 4 per cent to 6 per cent.

On a much larger loan of $1 million repayments would be $1220 more expensive in the same scenario.

Property Investment Professionals Australia chairman Ben Kingsley warned that some borrowers may have only factored in interest rates peaking at 6 per cent, which would leave them at risk of mortgage stress.

“Given the current levels of household debt, I have no doubt in my mind that if the vast majority of borrowers were paying interest around the 7.25 per cent, we would have a significant uplift in mortgage stress, unless the economy was booming, unemployment was low and real wage growth was flowing through to households.”

The more likely scenario is a 1 per cent rise in interest rates, which would see an economic slowdown due to households spending less, he said.

“This would limit the RBA’s ability to lift rates higher from this point, again unless the broader economy is firing.”

He recommended borrowers put extra savings into an offset account or into their mortgage while rates were low. This would provide a “buffer” for unexpected events – preferably enough to cover six months of repayments.

Borrowers could also consider fixing all, or part, of their loan, but this would restrict the amount extra that can be repaid and break costs could be expensive, he said.

Dream Financial senior advisor Paul Bevan warned that anything higher than a 7.25 per cent rate for mortgage repayments would cause “concerns” for borrowers.

A borrower with a $400,000 mortgage facing a rise from 4.25 per cent to 7.5 per cent would face an additional $10,000 a year in repayments.

“That’s almost $20,000 extra income they would need to earn to maintain there current standard of living and I’m not seeing many employers handing out $10,000 a year wage rises to their staff at the moment,” Mr Bevan said.

His clients are predominantly opting to fix half their loans.

Despite this, NAB chief economist Alan Oster was also not convinced the RBA would hike rates quickly enough to cause significant mortgage stress.

“The balance sheet is robust, 60 per cent of loans are variable, and [most are] 2.5 to 3 years in advance of where they need to be [in terms of repayments],” he said.

“If you’re worried about a bubble the last thing you’re going to do is put up rates,” he said.

Mortgage repayments are now actually lower than they were five years ago in most states. And fewer households are facing mortgage stress, Census data shows.

This is largely thanks to low interest rates.

If these rates increased they’d quickly appear much more expensive for households, a recent report from LF Economics shows.

“The standard mortgage payment formula shows nationwide debt repayments relative to household incomes are lower today than in 1990 and the smaller peak in 2008,” the report said.

In 1990, interest rates were around 17 per cent and borrowers used half their income to repay their mortgage in 1989, compared to 35.9 per cent in 2015.

But given the “current economic climate it’s more likely that mortgage stress would be caused by factors other than rising interest rates,” Joanna Pretty, general manager for non-bank lender State Custodians said.

“Rather, the most common causes are ‘life events’ such as unemployment, marriage separation or health issues.”

How to prepare for a rate hike

  1. Calculate how much extra each rate increase could cost you
  2. Consider fixing your loan, or part of it
  3. Make additional repayments ahead of time as a ‘buffer’
  4. Reduce your expenses where possible
  5. Speak to your bank, broker or financial planner

source: https://www.domain.com.au/news/interest-rate-hikes-how-an-rba-increase-would-affect-your-mortgage-repayment-20170704-gx408i/

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RBA keeps cash rate at 1.5pc

The Reserve Bank of Australia has kept the official cash rate steady for a 10th straight meeting and signalled it won’t be in any rush to join offshore banks in moving towards near-term interest rate hikes.

Board members left the overnight cash rate at 1.5 per cent, where it’s been since last August, as was forecast by markets.

In recent months, Australia’s big four banks, along with a number of smaller lending institutions, have regularly raised rates, particularly for interest-only borrowers, effectively tightening monetary policy despite the central bank’s caution. Household debt, new figures show, is at a record high.

Treasurer Scott Morrison said on Monday that he was confident this year’s APRA crackdown on interest-only loans to property investors would ensure a “safe landing” by encouraging households to reduce their overall debt levels.

The dollar fell sharply after the board’s statement was published after it dashed expectations among some traders that they would join the Bank of England and Bank of Canada’s recent shift towards a more hawkish stance.

Instead, the Reserve Bank produced a near carbon copy of the June statement, noting that consumption remains “subdued” because of low wages growth and high levels of household debt.

The bank also noted that global inflation rates have decline recently in response to falling oil prices, and that wage growth was subdued in “most countries, as does core inflation”.

On the more optimistic front, the Reserve Bank said that it expects the economy to “strengthen gradually” and repeated that a rising Australian dollar wouldn’t be helpfull.

The wait-and-see tone of the statement saw the exchange rate fall to US76.32¢ from US76.77¢.

In a repeat of the June statement, the Reserve Bank noted that the housing market varies around the country, but that the stronger markets are showing signs of easing.

“Growth in housing debt has outpaced the slow growth in household incomes,” it reiterated.

“The recent supervisory measures should help address the risks associated with high and rising levels of household indebtedness. Lenders have also announced increases in mortgage rates for investor and interest-only loans.”

source http://www.afr.com/news/economy/monetary-policy/rba-keeps-cash-rate-at-15pc-20170704-gx4afm

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RBA could raise rates eight times in next two years, ex-board member says

The Reserve Bank could increase interest rates eight times in the next two years, former board member John Edwards said.

The RBA is probably already considering a program of rate increases given its forecasts for inflation returning to target and economic growth to accelerate to 3 per cent against a stronger global backdrop, Edwards said in a column on the website of the Lowy Institute for International Policy, where he is a non-resident fellow.

Theorising that the long-term cash rate is about 3.5 per cent — lower than the 5.2 per cent average over the past two decades — and the RBA wants to start tightening in 2018 and reach its goal within two years, that would require four quarter-point increases each year, he said. Rates have been on hold at 1.5 per cent since last August.

“It seems to me that something like eight quarter percentage point tightenings over 2018 and 2019 are distinctly possible, if the RBA’s economic forecasts prove correct,” said Edwards, who was on the bank’s board until July last year.

“It’s possible the tightening could start earlier, or if not the tightening itself, at least the signaling which should precede it. We may be seeing a little of that now.”

Small steps

The RBA traditionally makes small steps and typically doesn’t commit itself to subsequent moves, making the market wary of predicting where the bank will be in a few years, Edwards said. In the current circumstances, he said we can reasonably assume:

  • the RBA considers its current rate to be exceptionally low
  • if the economy improves as it predicts, the next move will be up
  • if the economy was operating, as the RBA predicts, at 3 per cent output growth and 2.5 per cent inflation, it would think of a sustainable or natural policy rate of at least 3.5 per cent
  • most importantly, it will want the policy rate increase to match the forecast improvement in Australia’s economic performance, so rising to at least 3.5 per cent by the end of 2019.

Edwards noted the risks of rate increases alongside high household debt, with most home loans on variable interest rates closely tied to the RBA’s cash rate.

“The bigger the household debt, the more impact a quarter percentage point increase in the policy rate will have on household spending,” he said. “In the Australian case, it is certainly possible that high household home mortgage debt will crimp consumer spending if the policy rate returned to what was once considered a relatively low long-term rate.”

Still, Edwards noted that interest paid on home loans is much less than it was six years ago: while debt has increased, interest rates have fallen a lot. Payments are now 7 per cent of disposable income compared with 9.5 per cent in 2011, and 11 per cent at the peak of the RBA tightening cycle before the 2008 financial crisis, he said.

Moreover, if the standard variable mortgage rate peaked at around 7 per cent, that would still be nearly one percentage point below the 2011 level, and two-and-a-half percentage points below the 2008 peak, he said.

“The pace of tightening will anyway be governed by the strength of the economy,” Edwards said.

“If household spending weakness, if the long expected firming of non-mining business investment is further delayed, if the Australian dollar strengthens, if employment growth is persistently weak, then the trajectory of rate rises will be less steep and the pace less rapid.”

Bloomberg

Source: http://www.smh.com.au/business/the-economy/rba-could-raise-rates-eight-times-in-next-two-years-exboard-member-says-20170628-gx0cin.html

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Tax-saving strategies to get in place before June 30

The end of the financial year will ring in many changes to superannuation and personal allowances while ringing out popular concessions for property investors and home buyers.

Adrian Raftery, an associate professor in tax, financial planning and superannuation at Deakin University, says now more than ever it’s crucial for individuals and small business owners to take ownership of the upcoming changes.

“With a raft of changes coming into play on July 1, a lack of attention now may cost you tens of thousands of dollars down the track, ” he warns.

But it is being made even harder this year because of dozens of confusing tax proposals being debated about superannuation, particularly self-managed super funds (SMSFs).

Tax rates for individuals
Tax rates for individuals

“Overlooking compliance would be understandable given all the changes being considered,” says SMSF Association chief executive John Maroney. “But it’s imperative members are across all the changes.”

Specialists also warn the Australian Tax Office is targeting taxpayer abuse of generous work-related expenses covering travel, meals, clothes, phones and use of internet.

Some temporary concessions, such as a $20,000 instant write-off by June 30, enable small businesses to purchase computers, furniture, cars, even art.

Ken Fehily, director of tax specialist Fehily Advisory and champion of local artists, says: “Art improves the feel of your work environment for you and customers, helps artists and provides a tax deduction.”

Raftery says tax planning should be a 365-day per year exercise, not one merely carried out in the last few weeks before June 30.


While it’s important to make the most of the next five working days, Rafferty says it’s vital to start planning from the first day of the new financial year.

“It always surprises me when people think that tax planning only occurs in June each year. Well, it may for those who are either not very organised or perhaps have been swayed by some savvy retailers who make us think that the end of the financial year is when it all happens. But if you want to save as much as legitimately possible on your largest expense (tax), I encourage you to start tax planning on the first day of July each year.”

Property

From July 1, a property investor can no longer claim a tax deduction for visits to residential rental properties.

Worked example of salary-sacrificing into super
Worked example of salary-sacrificing into super

“If you were planning to inspect your rental property, do it before June 30,” says Mark Chapman, director at H&R Block.

Bradley Beer, chief executive of BMT Tax Depreciation, says property investors can claim depreciation on items such as hot water systems, dishwashers, carpets, blinds and curtains, light shades, ovens, furniture, range hoods, smoke alarms and cook tops.

“Plant and equipment items are basically items that can be ‘easily’ removed from the property as opposed to items that are permanently fixed to the structure of the building,” says Raftery, author of 101 Ways to Save Money on your Tax Legally (Wiley).

They include carpets, blinds and light fittings. They are usually written off over five to 10 years.

Ken Fehily with the artwork he has acquired for his office using a $20,000 tax concession.
Ken Fehily with the artwork he has acquired for his office using a $20,000 tax concession. Josh Robenstone

The 2017-18 federal budget proposed a limit on depreciation deductions on residential rental properties to only those investors who actually purchased the plant and equipment.

Treasury is still finalising how the new rule will work.

In Victoria, off-the-plan stamp duty concessions will no longer be available for investors. That means an investor in a $2 million off-the-plan apartment in Melbourne might have to pay another $110,000. Some concessions have been switched to regional Victorian investors.In Queensland and Tasmania, first home buyers’ grants will revert back to $15,000 from $20,000 for new properties.

Super contributions

The cap on concessional contributions – which are made before income tax is deducted — falls from $30,000 (or $35,000 if you’re 50 or over) to $25,000 from July 1.

“If you’re able to make additional contributions to super, do it by June 30 to take advantage of the higher cap,” says Chapman.

If you salary-sacrifice into super, make sure your salary-sacrifice agreement with your employer reflects the new reduced $25,000 cap from July 1 to avoid breaching the cap.

The cap on non-concessional contributions, which are payments from after-tax income, is also falling $180,000 to $100,000.

“If you have spare cash, take advantage of the higher cap and pay some extra into your super by June 30,” says Chapman.

Super balances at June 30 will now be used for assessing eligibility to make non-concessional contributions for the next 12 months.

“If the super balance at June 30 is greater than $1.6 million, you will no longer be able to make non-concessional contributions in future years,” says Tim Mackay, principal of Quantum Financial, an independent financial adviser.

“If you want to take advantage of the bring-forward rule, this also drops from $540,000 over three years to $300,000 over three years. If your balance exceeds $1.6 million, you can no longer utilise the bring-forward rule,” says Mackay.

Making the contribution a day late could result in exceeding the new limits.

“It’s crucial you crunch the numbers correctly because any contributions made that exceed the cap will be taxed at 46.5 per cent rather than 15 per cent concessional tax rate,” Mackay says.

Spouse contributions to a fund have to be made on or before June 30 to claim a tax offset. The maximum tax offset is 18 per cent of non-concessional contributions up to $3000, or $540.

From July 1, the income threshold for spouses will increase from $10,800 to $37,000 in a financial year to receive the full tax offset. The cut-off threshold for spouses will also increase from $13,800 to $40,000.

Also from the new financial year, the super co-contribution will be available only to those with a total superannuation balance less than $1.6 m at the end of the previous financial year.

It will also not be available to those who have reached non-concessional cap for the year.

SMSF pensions

Nearly half of SMSF members are drawing a pension, a 7 per cent increase in the past five years.

“Do not overlook withdrawing a minimum pension for the 2016-17 financial year,” warns the SMSF Association’s Maroney.

For new pensions, the minimum pension amount is calculated as a percentage of the pension balance on the date it starts. For continuing pensions, it’s the balance on July 1 of the current income year.

Failing to take the minimum means you will be deemed not to be in retirement phase for the entire financial year, which means loss of the tax exemption status.

“Those in transition-to-retirement must take care not to exceed the maximum payment,” adds Maroney.

Mackay points to the potential for capital gains tax rollover relief if you move assets from pension to accumulation phase to stay under the new $1.6 million cap.

“If you are in pension phase at June 30, you may be eligible for capital gains tax rollover relief. This resets your cost base to June 30, 2017 but you need to speak to your advisor now and take action before the end of the financial year. This will ensure you don’t pay more tax than you need,” he adds.

Estate planning

Use this opportunity to update what happens to your assets when you die, particularly since the new super rules will force a rethink on how children inherit your retirement savings.

“We can say from years of experience the most important thing is to have an up-to-date will and enduring power of attorney (EPOA),” says Donal Griffin, a director of Legacy Law, which specialises in estate planning.

An EPOA is someone who makes financial and personal decisions on your behalf if you become unable to make your own decisions.

“It should refer to superannuation because changes to superannuation law over the last 10 years mean that there may be considerable tax payable on superannuation balances paid to children who are, by now, over 18.”

A properly drafted EPOA will allow a trusted person to take legitimate steps to reduce tax, he says.

Work-related expenses

Kath Anderson, Australian Taxation Office assistant commissioner, says the ATO is comparing taxpayers with others in similar occupations and income brackets to identify higher-than-expected claims related to expenses on vehicles, travel, internet, mobile phone and self-education.

“It is important to know what you’re eligible to claim before lodging your tax return and to make sure you don’t claim more than you’re entitled to,” Anderson says.

“One, you have to have spent the money yourself and can’t have been reimbursed. Two, the claim must be directly related to earning your income. Three, you need a record to prove it,” she says.

For example, deductions for work uniforms are a common mistake.

“It’s a myth that you can claim everyday clothes — for example, black pants and a plain white shirt — even if you only wear them to work, and your employer says you have to. To legitimately claim your uniform, it needs be unique and distinctive, such as a uniform with your employer’s logo, or be specific to your occupation and not for everyday use, like chef’s pants or coloured safety vests.”

Raftery says that those who use their car for work or business purposes can start their logbook before June 30 and complete it in the new financial year.

“If you use your car for work purposes and keep a log book for 12 weeks, then the deductions can be in the thousands,” he says.

“Make sure that you keep all costs associated with the running of your car (such as petrol, insurance, registration, servicing and lease payments) for the whole year, not just the period that you kept the log book.”

Raftery says that unless you are a small business (and can immediately write off the purchase of new business assets that cost less than $20,000), it is pointless buying a tax-deductible asset that costs more than $300 at the end of the financial year.

“This is because depreciation of these assets is pro-rata for the number of days that you own them during the financial year, resulting in a $1000 outlay on June 30 producing a measly $1 deduction at tax time,” says Raftery.

Source http://www.afr.com/personal-finance/taxsaving-strategies-to-get-in-place-before-june-30-20170620-gwux4v?

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The six things Australians blame for high property prices, according to survey

Property prices in the country’s biggest capital cities have soared over the past five years, but a new survey shows Australians don’t all agree on what caused the boom.

Foreign investment was seen as the biggest culprit for high house prices by more than half of those asked by Galaxy Market Research on behalf of State Custodians in April.

And the older the survey respondent, the more likely they were to say this was a factor.

The six things Australians blame for high property prices. Photo: Henry Zwartz

In Gen Y, 49 per cent thought foreign buyers were to blame for high house prices, while 72 per cent of those aged 65 plus said the same.

The other factors all respondents believed were contributing to house price growth were overpopulation, property investment and negative gearing incentives, high transaction costs, low interest rates and low supply.

While all these factors likely had an impact, it was the “perfect storm of all of them together leading to the market we are experiencing today”, State Custodians general manager Joanna Pretty said.

Foreign investment was targeted in the government’s 2017 budget, restricting the number of homes able to be sold in a new development to just half the properties and an introduction of a tax for those who don’t put their investments up for rent.

“The budget changes go some way to help regarding the foreign investment levels, but the other factors still exist and there is still a lot of work to be done regarding affordability generally,” Ms Pretty said.

Low interest rates were likely having a bigger impact than overseas investors, The Successful Investor founder Michael Sloan said.

“It’s easy to blame foreign buyers for increasing house prices but that is not the reason property prices are increasing,” he said.

“Anyone who can buy at these low rates is buying and this puts more buyers in the market and that pushes up prices.”

Mr Sloan said property investors were an “easy target’ and population growth was good for the economy.

“Of course, home buyers don’t like to see prices rising but property prices have stayed ahead of inflation for decades. So that means it is a normal part of the cycle.”

Compass Economics chief economist Hans Kunnen was also adamant that foreign investors didn’t affect house values, but they could be causing apartment prices to rise.

“Foreign investors buy apartments more than houses and when you’re looking at house prices it’s not foreign investors pushing prices up,” he said.

He did think they had an impact on apartment prices, but noted house prices had risen far more quickly than apartment values had.

Predominantly, the problem was a low supply of properties being built – something he was surprised wasn’t ranked higher.

But Property Finance Made Simple author Andrew Crossley said the list of reasons was “little surprise” to him.

Given the restrictions on foreign buyers he “did not agree that foreigners should take the full blame”, instead saying they were a contributing factor.

He agreed population growth and investment properties had made an impact, but said it was low interest rates that were the biggest contributing factor as they allowed people to afford bigger mortgages.

“The reality is that the housing affordability crisis is mostly centred around Melbourne and Sydney, this has not been a normal cycle of growth in these cities, it has been extreme,” he said.​

SOURCE https://www.domain.com.au/news/the-six-things-australians-blame-for-high-property-prices-according-to-survey-20170511-gw2cei/

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How the Federal Budget will impact property

In the 2017 Federal Budget, a range of measures were announced that should have a positive impact on the market in terms of increasing supply and helping young buyers purchase their first home.

There has been a lot of pressure on both state and federal governments to ‘fix’ the affordability issue, so long as they don’t do anything to decrease property values as this would be to the detriment of the 67% of Australians who currently own their own homes. Not an easy task.

But the Federal Government has had some good ideas and the measures in the Budget should be useful. Among the most impressive measures is incentives for downsizers to sell.

From July 1, 2018, individual downsizers aged 65 and over who have lived in their home for at least a decade will be able to make a non-concessional contribution of up to $300,000 into their super from the proceeds of their sale. Couples will be able to contribute $600,000.

This is a win for retirees as it removes a significant disincentive for older Australians to downsize and will result in greater supply of family homes to young family buyers. This is especially important in markets like Sydney, where lack of supply has been a significant factor in pushing up prices and making it very hard for young families to secure appropriate accommodation.

Additional money in super will also help older Australians fund their retirement long term as their superannuation investments are taxed at a lower rate of 15%. The contributions that can be made from the sale of their homes will be exempt from the usual voluntary contribution rules.

First home buyers are also getting some help through the First Home Super Saver Scheme.

From July 1 this year, first home buyers will be able to make voluntary contributions of up to $15,000 per year into their super ($30,000 total) for the purposes of saving for their first home.

These contributions will be taxed at the usual super rate of just 15%. These funds, along with earnings, can then be withdrawn for a first home purchase from July 1, 2018, minus a small withdrawal tax (the buyer’s marginal rate less a 30% offset).

We see this measure as beneficial to all buyers, however, the reality is that buyers in Sydney and Melbourne will benefit less given median home values are so much higher. Currently, a 20% deposit on a median priced Sydney apartment is close to $150,000, so the $30,000 cap on savings through super means this particular measure is a long way off meaningful assistance.

However, we can’t hand first home buyers a blank cheque either, so this measure appears to be a sensible way for the Federal Government to contribute to affordability. For today’s younger buyers, saving the deposit is a far bigger hurdle than managing repayments given mortgage rates are so low.

Don’t forget that federal assistance to first home buyers will be in combination with state government measures as well. The Victorian Government plans to abolish stamp duty on properties worth $600,000 or less and double the First Home Owner Grant for regional buyers. We’re yet to find out what the New South Wales Government intends to do but a taskforce has been set up.

All in all, first home buyers in Victoria and New South Wales are about to receive a lot of new assistance and young people should start planning how to take full advantage of it now.

There is also a focus on developing urban areas of cities which will take pressure off the inner ring suburbs. Western Sydney was a key focus of the Budget, with reform of planning and zoning laws and a reduction in development approval timeframes to enable more new housing and better infrastructure connecting the west to the rest of Sydney. This is really important for the future, with population growth in eight key council areas expected to be close to 500,000 over the next 20 years.

There has been much debate about negative gearing and capital gains in the lead-up to the Budget but no major changes have been made, just a few tweaks around the edges.

From July 1 this year, landlords will no longer be able to claim travel expenses when visiting their properties; nor depreciation on items purchased by previous owners on future investments.

A vacancy tax will be levied on foreigners who leave their investment properties vacant. This should add to the supply of rental homes for Australians by encouraging foreigners to lease their properties.

From now on, the proportion of new developments that can be sold to foreign investors will be capped at 50%. Currently there is no limit.

The Government also plans to stop foreign and temporary tax residents from claiming the main residence capital gains tax exemption when they sell their Australian homes. This feels like a disincentive especially for skilled professionals to come to Australia with their families.

I think we should be welcoming foreign investment into our country, as there is a lot of new wealth in Asia that could be headed for our shores if we put out the welcome sign. Right now, I think both federal and state governments are sending unhelpful messages to foreign investors with a range of new fees and rules that limit or discourage their participation in our real estate market.

Overall, this Budget is aimed at building confidence in our economy and the measures above will no doubt assist in this process. A strong economy benefits every buyer, seller, investor and renter.

Perspective from John McGrath

source: http://www.switzer.com.au/the-experts/john-mcgrath-property-expert/20170511-how-the-federal-budget-will-impact-property/

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Should we really fear this housing bubble talk?

Is there a real story behind all this housing bubble talk, or are there a lot of publicity seekers simply blowing a lot of hot air bubbles? It doesn’t seem that we can get past one day without some media outlet reporting that we are living on the edge of the economic abyss and we’re about to fall into it.

But we should be used to it.

In July 2015, an hitherto ‘unknown’ Noble Prize economist, was tipping a bubble then. If you were spooked by his early call then and sold your Sydney property, you missed out on two years of capital gain! If you owned a $1 million home then, well, you’ve been scared out of about $200,000. And that’s a conservative guess based on the median change in prices. If you were in a red hot favoured suburb then, you could have passed up $300,000 or more!

But wait, there’s more.

In March 2014, the SMH carried a story headlined as: “Housing bubble fears: property prices could fall 10 to 20 per cent.” The story started with: “The $4 trillion Australian housing market is now overvalued by at least 10 per cent. Every day, valuations get more stretched. Indeed, Australia is just months away from having the most expensive residential property market in history.”

Of course, one day, our property market will have problems but if you’d listened to the warnings from this guy (I won’t name him because he’s a mate who’d hate to be singled out), you would’ve lost a fortune by selling out and waiting for a crash to buy in again at a profit.

Of course, the market is miles hotter now but you need a trigger for a property collapse and rising interest rates and a recession, which drives unemployment up, are both on the low order scale right now.

Next week’s low economic growth number, which could be negative for the March quarter because of Cyclone Debbie, coincides with what looks like a slower economy than many of us were expecting.

On Thursday, we see the latest business investment figures and, if they are disappointing, some fearmongers are likely to talk about a severe slowdown or even recession.

I doubt it and so does Treasury and the RBA. Maybe an interest rate cut would be ideal if this slower economy looks likely to settle in for a few quarters but house prices in Sydney and Melbourne will stop the central bank from cutting rates.

Our predicament has come about because the world needed low interest rates to beat their recessions that we didn’t go into. However, we still had fears about the GFC and it eroded confidence. The end of the mining boom was also linked to the worldwide recession and that didn’t help our economy.

However, because our official interest rates were at least 2% plus higher than most other central banks’ and the mining boom was ending, the RBA had to cut. This encouraged home-buying in Sydney and Melbourne like we’ve never seen before.

And part of the reason for that was that both states have grown quite strongly over that time. Provided we don’t see a recession and Donald Trump doesn’t fail in getting his tax plan up, or that clown in North Korea doesn’t destabilise the world, then we could muddle through this house price boom.

Today, Fairfax talks about a fund manager who has sold everything and he’s most worried about the East Coast property market. This guy isn’t a dope but he can be a publicity-seeker at times. However, this is a big call to give clients back their money.

I won’t name him unless he is right in the not-too-distant-future. If he’s wrong, he will be just another alarmist who has made a big, negative call.

The really smart investor, Jeremy Grantham from Boston, was warning us in 2012 and Professor Steve Keen has been onto it since 2010!

One day, these guys will be right — house prices will fall. But how bad will it be?

This chart of housing prices shows that there are ups and downs but the downs are deep, scary ones because we haven’t had a recession for over 25 years. Even then, the real estate price drop wasn’t a crash.

Provided the global and local economic pictures don’t go to custard, then a property crash in Sydney or Melbourne could be, in more likelihood, an orderly correction.

I’ve got a lot of money invested on this more likely scenario and if I’m wrong, I’ll be holding quality assets that will keep returning nice dividends and rent that will see me through until asset price rises resume.

That’s what happens in the real world, provided you invest wisely and can service your debts.

Beware false prophets, who, one day, will be right. But they can be wrong for a long time. Think about the economists who’ve tipped Australian recessions and have been wrong for a quarter of a century!

source: http://www.switzer.com.au/the-experts/peter-switzer-expert/should-we-really-fear-this-housing-bubble-talk/

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Why it pays to use a mortgage broker when choosing a home loan

If you like nothing more on a weekend than to pore over interest rate updates, decipher mortgage jargon and scroll through bank T&Cs, then you won’t need to call on a broker to find a home loan. But if you’d rather spend that time sipping a latte with your feet up, you’d better outsource the hard yards.

In theory, the vast array of home loans available should benefit homebuyers, but the amount of choice can be overwhelming. So it’s no surprise that brokers now provide more than 50 per cent of mortgages in Australia. Here are some of the reasons why.

It’s technically free

More than 50 per cent of home loans in a Australia are purchased through a mortgage broker.

Mortgage brokers are free in that you don’t pay them directly. Their pay comes from the commission they receive from the lender they ultimately pair you with. The Domain Home Loans online comparison tool can help put you in touch with potential brokers.

It pays them to help you

So how do you know they’re not favouring the lenders who pay the best commissions?

“I’ve found in the last two or three years that all the conventional banks have been paying virtually the same commission,” independent broker Brian Wood says. “The non-traditional lenders might not but in the main it’s the same.”

Brokers are actually compelled by law to reveal the details of their commissions with the introduction of a disclosure document under the Mortgage and Finance Association of Australia’s National Consumer Credit Protection Act.

“We’re randomly audited all the time to make sure we’re doing the disclosure,” Wood says, adding that it’s always a good idea to ask your broker to provide such information upfront.

Niche or mainstream

APRA has moved to cool down the market.There are two options of brokers homebuyers can choose to go with, niche or mainstream. Photo: Jessica Shapiro

It’s up to you whether or not you go with a broker affiliated with a larger network of lenders such as Aussie Home Loans, which has access to 21 lenders and around 2700 loan products.

“Aussie lenders cover 95 per cent of all residential settlements in the marketplace today,” chief executive James Symond says.

While mortgage brokers usually have a good network of lenders, they can only, according to Wood, market and sell loans they’re licensed to talk about, so your broker might not be accredited to talk about every lender and bank out there. Many brokers choose to take a niche route, preferring to stick with two or three lenders that meet their specific customers’ needs.

Inside knowledge

Just to succeed in an increasingly competitive industry, brokers have to keep their ears to the ground, so you can rely on most having a good depth of knowledge.

Better qualified

Wood says some “young loan managers” show limited knowledge.

“They follow the script exactly because that’s what they have to do. They suggest you diversify your investments, they sell you life insurance, health insurance – everything else they’ve got,” he says. “It’s very difficult to go into a branch of any bank and get someone who really knows what they’re talking about. And they’re getting paid whether they get you that loan or not. Most brokers, you’ll find, have been around for a long time.”

Symond agrees: “It’s harder to be a broker today than ever before. With Aussie there is a significant upfront training course and year-long mentor program plus a diploma. The bar is very high.”

Open shop

Aussie Home Loans CEO James SymondAussie Home Loans CEO James Symond says a professional mortgage broker will recommend the best loan for the customer. Photo: O’Neill Photographics

Symond says the nature of the broker industry is that most are small businesses and as such rely on reputation and word of mouth. Bank loan officers promote their own products and only process mortgage loans originated by their employer. Of course it’s similarly important to ask whether a non-independent mortgage broker is favouring their own products. “There is no benefit for our brokers to sell a home brand product over another on the panel,” Symond says. “A professional mortgage broker will just recommend the best loan for the customer.”

Second chance

If you have an outstanding bill or two that have blackened your credit rating then banks are likely to knock you back without question. There are lenders, however, that specialise in bad credit loans and brokers can put you in touch with these.

Personal touch

A good mortgage broker will tailor their home loan offering to meet their client's needs.A good mortgage broker will tailor their home loan offering to meet their client’s needs. Photo: Rob Homer

Mortgage brokers are able to work one-on-one with each client, evaluate their specific needs and find a lender that suits them. The customer can then come back to that same broker for future loans, with the benefit of that background knowledge and previous research.

Life’s too short

Don’t forget that the forms you need to fill and the paperwork you need to locate once you’ve finally chosen your loan make for a whole new headache, but your broker can help you with that too. For many, tackling the jargon and maths of home loan research is so far removed from their personal skill-set tit can be difficult to just understand the basics.

Wood says that in his experience those who do their own research and manage to find a cheaper loan are usually derailed by the pedantics of fine print later on.

Symond agrees: “It’s so competitive and confusing today you need an expert to help you navigate through it all. It’s not good enough to go to one lender. Broking has grown out of, really, helping all borrowers navigate through what is one of the most complicated mortgage markets on the planet.”

Source: domain.com.au

First-Home-Buyers

The NSW Government has developed a new package of measures designed to improve housing affordability across NSW

These policies take into account the difficulty that first home buyers face in entering the market, the state’s growing population and the need to ensure that development occurs close to essential infrastructure such as roads, railway lines and schools.

The package aims to give home buyers a fair go by

Give0Dfirst home buyers0Da fair chance

increasing grants and concessions available to first home buyers

Increase0Dhousing supply at0Dreasonable prices

increasing housing supply at reasonable prices

Accelerate 0Dinfrastructure to 0Dsupport growing 0Dcommunities

accelerating the delivery of infrastructure to support growing communities

Supporting first home buyers

The NSW Government’s comprehensive package to improve housing affordability is focused on helping first home buyers, who often face stiff competition from investors.

For first home buyers, this comprehensive package will:

  • Tick iconabolish stamp duty on all homes up to $650,000
  • Tick icongive stamp duty relief for homes up to $800,000
  • Tick iconprovide a $10,000 grant for builders of new homes up to $750,000 and purchasers of new homes up to $600,000
  • Tick iconabolish insurance duty on lenders’ mortgage insurance
  • Tick iconensure foreign investors pay higher duties and land taxes
  • Tick iconno longer allow investors to defer paying stamp duty on off-the-plan purchases.

First Home Buyers

  • Stamp duty abolished or reduced. Save up to $24,740 on a $650,000 home
  • Grant of up to $10,000 for builders of new properties worth up to $750,000 and buyers of new properties worth up to $600,000
  • Insurance duty on lenders’ mortgage insurance abolished

Foreign Investors

  • Surcharge on stamp duty doubled from 4% to 8% and surcharge on land tax from 0.75% to 2%
  • Investors of any kind will no longer be able to delay for 12 months paying stamp duty on off-the-plan properties

Stamp duty relief

The duty paid when buying residential property can be an obstacle for first home buyers. For those entering the market, the NSW Government is abolishing this duty on new and existing homes worth up to $650,000.

For properties valued at between $650,000 and $800,000, the duty concession will be gradually reduced.

Concessions on vacant land will remain unchanged.

How much could first home buyers save?

First home purchase price Ordinary stamp duty Savings for first home buyers
of new dwellings*
Savings for first home buyers
of existing dwellings*
Total stamp duty charges for foreign investors
(surcharge plus stamp duty)**
$500,000 $17,990 $28,768 $18,768 $57,990
$550,000 $20,240 $31,451 $21,451 $64,240
$600,000 $22,490 $34,361 $24,361 $70,490
$650,000 $24,740 $26,857 $26,857 $76,740
$700,000 $26,990 $18,786 $18,786 $82,990
$710,000 $27,440 $17,172 $17,172 $84,240
$750,000 $29,240 $10,950 $10,950 $89,240
$775,000 $30,365 $6,922 $6,922 $92,365
$800,000 $31,490 $2,896 $2,896 $95,490

*Total of stamp duty exemptions plus first home owners grant plus savings from LMI duty abolition (Genworth LMI Premium Estimator based on a first home buyer with a $50,000 deposit).**Does not include additional land tax surcharge.

When do these stamp duty savings begin?

This change will take effect from 1 July 2017.

Contracts dated prior to the commencement of these reforms will continue to be eligible for the same grants, concessions, and conditions for which they would have been eligible had these changes not occurred.

First Home Owners Grant (New Homes)

First home buyers building a new property will be entitled to a $10,000 grant on homes worth up to $750,000.

First home buyers purchasing a new property worth up to $600,000 will be entitled to a $10,000 grant.

This policy aims to provide assistance to first home buyers and stimulate the construction of new dwellings.

The $5,000 New Home Grant Scheme, which was available to other buyers including investors, will be closed.

Insurance duty on lenders’ mortgage insurance abolished

Insurance duty on lenders’ mortgage insurance is imposed at a rate of nine per cent of the premium. The removal of this duty will save all home buyers (first home buyers or not) money if they need lenders’ mortgage insurance.

This policy will take effect from 1 July 2017.

For example, on a home valued at $800,000, a buyer with a deposit of $50,000 who needs lenders’ mortgage insurance, could save about $2,900.

Foreign investors to pay higher duties

Foreign investors will pay higher surcharges when they purchase residential real estate. The surcharge on stamp duty paid on new purchases by foreign investors will double from four per cent to eight per cent, and the surcharge on land tax will rise from 0.75 per cent to two per cent. Foreign developers will be exempt from the increased surcharges.

No more stamp duty deferral for investors

First home buyers often face strong competition for properties from investors. To help counter this, the NSW Government is abolishing the 12-month deferral of duty for residential off-the-plan purchases by investors.

Buyers who are purchasing a home they plan to live in off-the-plan (regardless of whether they are first home buyers or not) will still be entitled to a 12-month delay in the payment of stamp duty, deferring payment from 3 to 15 months after settlement. But this concession will be closed to investors.

This policy will take effect from 1 July.

Boosting supply in Sydney

The NSW Government is committed to improving housing affordability by increasing housing supply, including by accelerating rezoning and building infrastructure such as roads, schools and utilities that can enable development. The NSW Government will work with councils to provide the right conditions for developers to supply enough new housing in the right places.

More housing in the right areas

The NSW Government wants to ensure there are enough homes built to meet the growing population. However supply needs to be in the right areas, and the housing needs to be the right type and take into consideration the unique character of local neighbourhoods. Communities and councils have the lead role in determining where new housing can be delivered and how this can be done with respect to the character of the local neighbourhood.

The NSW Government has asked the Greater Sydney Commission to provide housing targets for each local council as part of its final District Plans.

To help councils, the NSW Government will make up to $2.5 million available to 10 priority councils to assist them to update their Local Environment Plans (LEPs) with appropriate housing targets within two years. Incentive payments will also be available to up to five other councils that volunteer to update their LEPs.

The NSW Government will also issue guidelines to assist councils to protect the character of important local areas, while supporting increased housing supply.

Expanding priority precincts and growth areas

Housing Supply Table Overall Map

The NSW Government will expand the Priority Precincts identified for growth and revitalisation in Sydney to include more areas and fast-track the delivery of new homes in these areas. The expansion of these precincts, which will deliver around 30,000 additional homes, will allow for the acceleration of rezoning and for modern, more diverse developments to be built.

This expansion will ensure an increase in the supply of housing in:

  • Belmore/Lakemba
  • Burwood/Strathfield/Homebush
  • Campsie/Canterbury
  • Cherrybrook (government land)
  • Frenchs Forest
  • Glenfield
  • Leppington town centre
  • Anzac Parade corridor
  • Riverwood
  • Schofields town centre
  • Seven Hills/Wentworthville
  • St Leonards/Crows Nest
  • Telopea
  • Turrella/Bardwell Park
  • Westmead.

Accelerate council-led rezonings

A specialist team will be established within the Department of Planning and Environment to accelerate council rezonings in Sydney and regional areas. This will accelerate the supply of available housing capacity by rezoning greenfield and urban renewal sites.

Faster approvals

The NSW Government will introduce a range of measures to help councils speed up approvals. This could include independent panels for some councils to ensure Development Applications (DAs) are done efficiently and to ensure the integrity of the planning process. Under this measure, independent panels will determine DAs, other than smaller DAs delegated to council staff.

The NSW Government will also:

  • simplify the complying development rules for greenfield areas and align standards with the housing types delivered in these areas under a Greenfield Housing Code
  • establish a team within the Department of Planning and Environment of district case managers and an Office of Housing Coordinator to resolve impediments between councils, the government and home builders.

Building smaller, smarter homes where appropriate

The NSW Government will:

  • expand complying development (a fast track approval process) to include medium density housing such as terraces, town houses and dual occupancy under a medium density housing code
  • require the NSW Government’s land development agency, Landcom, to take an active role to support housing affordability
  • work to deliver smarter and more compact apartments in well located areas. This will reduce construction costs for new apartment buildings, a saving which can be passed on to home buyers. Further measures being explored would allow apartments to be sold separately to parking spaces, giving home owners the flexibility to sell a car space if they wish.

More infrastructure

Increasing housing supply is only possible if there is adequate infrastructure to service new homes and support communities.

The NSW Government will boost infrastructure funding to accelerate the delivery of housing, ensuring that works which support housing are prioritised and in locations in alignment with government planning and housing demand.

The NSW Government will provide access to around $3 billion in infrastructure funding to accelerate the delivery of housing. This funding will include more direct infrastructure funding, support for councils to borrow funds so they can bring forward capital works and reforms to infrastructure contributions to ensure that developers make a fair contribution towards the costs of establishing communities.

Snapshot

NSW Government is investing a record $73.2 billion in infrastructure across the state

Key transport projects include WestConnex, NorthConnex, Sydney Metro, CBD and South East Light Rail, Parramatta Light Rail, B-line buses

And across regional NSW the revitalisation of Newcastle and the Pacific, Princes and Great Western Highway upgrades

More state infrastructure

The NSW Government will contribute $1.6 billion, including new funding of $600 million made available through Restart NSW for the Housing Acceleration Fund. An additional $1 billion from the state capital program will be redirected towards priority projects to support housing.

The NSW Government is investing heavily in infrastructure statewide, with millions of dollars committed to new and redeveloped hospitals, classrooms, better sporting facilities and transport hubs.

More local infrastructure

To bring forward the delivery of local infrastructure to support housing supply, the NSW Government will support up to $500 million in additional borrowing by councils by halving the cost of council borrowing for eligible projects. This will give councils greater certainty in delivering essential local infrastructure including roads, stormwater facilities and public open spaces. An allocation of $369 million will be made to councils for local infrastructure under the phase out of the Local Infrastructure Growth Scheme.

Reforming infrastructure funding

The NSW Government is keen to ensure that developers make a fair and appropriate financial contribution towards the cost of infrastructure.

Development contributions help cover the cost of delivering infrastructure needed to support new communities and homes. Special Infrastructure Contributions (SIC) help fund the regional infrastructure that supports different communities across the state. They partially fund state or regional roads and land required for social infrastructure such as schools, health care and emergency services. SICs will be expanded to 10 additional areas across Sydney to help fund infrastructure in communities with significant housing growth.

The Local Infrastructure Growth Scheme (LIGS) has in the past been used to fund the gap between the maximum contribution that councils can charge developers and what it actually costs councils to deliver the infrastructure.

The NSW Government will continue to provide LIGS subsidies to certain areas for the next three years before ending the scheme. The subsidies will be gradually reduced and the cap on developer contributions gradually increased. The cap will be increased by $5,000 on 1 January 2018, 1 July 2018 and 1 July 2019. At the end of 2019/20, the cap will be removed entirely and LIGS funding will cease. The phaseout of LIGS will help developers adjust to the change.

The LIGS will be closed to any other new areas. In these areas, the cap on developer contributions will be removed immediately. By removing the cap on contributions, the NSW Government will assist councils in these other areas to fund local infrastructure directly through their developer contributions. In these areas, if contribution rates exceed the current cap levels ($20,000 for infill and $30,000 for greenfield), contributions plans will be subject to review by IPART in accordance with the Essential Works List prior to allowing development to be charged the full apportioned contribution rate. This will help to put downward pressure on local infrastructure costs and ensure that only appropriate, efficient infrastructure is funded through developer contributions.

Steps to housing

1

Step 1

More land released and rezoned

2

Step 2

Faster building approvals

3

Step 3

Developers to make a greater contribution towards enabling infrastructure upfront to unlock housing supply

4

Step 4

Councils assisted to build local infrastructure like roads, community centres and public open space

5

Step 5

State funded capital works like public transport, schools and hospitals

Focusing on results

Housing affordability is a long-term priority for the NSW Government.

The NSW Government will establish a Premier’s Priority on Housing Affordability which has a headline goal of increasing the number of dwelling completions to 61,000, on average, per financial year to 2020-21.

Two targets will contribute to achieving this goal: faster housing approvals (90 per cent of approvals determined within 40 days by 2019) and a new target of state-led rezoning for 10,000 additional dwellings in appropriate areas per year, on average, to 2020-21.

The NSW Government will also establish a ministerial task force on housing affordability to allocate priority infrastructure funding, hold government and councils accountable for the delivery of housing targets and drive the implementation of this strategy.

Former RBA governor Glenn Stevens

The NSW Government’s housing affordability package has been developed with the oversight of former Reserve Bank of Australia governor Glenn Stevens.

Read his report to the Premier
Download the report (PDF, 485kb)

Steps taken so far

The NSW Government has boosted the supply of housing and supported this with record investment in infrastructure. Initiatives which have helped put downward pressure on housing prices and address housing affordability so far include housing completions, opening up more land, assistance for first home owners and other home buyers and delivering housing infrastructure.

Building more homes

In 2016 more homes were being built in NSW than at any other time in the state’s history. A record 60,000 homes were completed, more than double the number finished in 2010. As at December 2016 a record 83,000 homes were under construction in NSW. Overall approvals for housing also reached record highs, climbing to more than 70,000. New housing completions in Greater Sydney also continue to break records, with the keys handed over for 37,608 new homes in the year to March 2017.

Opening up more land

More land has been released and rezoned than ever before to create new communities. Sydney now has the highest amount of released and rezoned greenfield stock since land-release programs began in the early 1980s. To ensure developments are in the right place, the NSW Government is planning for new transport infrastructure to be built at the same time as housing.

Actions are not just about delivering new greenfield sites. The NSW Government is also reforming the planning system so that more low-rise, medium-sized homes such as terraces, townhouses and apartments – which require less land – can be built, providing more choice to home buyers.

Assistance for first home owners and other home buyers

Since 2011, the NSW Government has provided more than $1 billion in assistance to first and new home buyers. This has included grants, stamp duty exemptions and discounts, mainly targeted at unlocking new homes for first home buyers.

Creating housing infrastructure

The NSW Government is investing a record $73.2 billion in infrastructure over the next four years, including on roads, schools, hospitals and public transport which will help support new communities and provide homes closer to workplaces. Since 2012, almost $1 billion in extra money has been committed, through the Housing Acceleration Fund, towards infrastructure such as roads, water and electricity networks, specifically funded to speed up the delivery of new homes.

Source https://www.nsw.gov.au/improving-nsw/projects-and-initiatives/first-home-buyers/