How strata is affected by the 2020-21 Federal Budget
The COVID-19 pandemic created macro-economic issues which the Federal Budget was forced to address on 6 October 2020. Facing a huge deficit, the Government introduced stimulus measures designed to create jobs and boost infrastructure and construction activity. Some of the Budget measures will have direct and indirect impacts on strata.Here are 4 areas that will see direct and indirect impacts on strata as a result of the 2020-21 Federal Budget:
- Demand for strata properties will slow
- Construction gets a boost
- Financial support for strata renters
- Personal tax cuts
Will demand for strata properties slow?
The near-total shutdown of Australia’s international border due to COVID-19 has meant less international students, travellers and migrants.
Accordingly, the Australian Bureau of Statistics reported in September that while “private sector dwellings excluding houses” rose 23.4% it remained 12% lower than in the same time last year and rose 9.7% in seasonally adjusted terms.
The Budget forecasts the population to grow to almost 26 million by 2022, which is about one million fewer than last year’s forecast.
While Australia has had great success in managing the pandemic so far, the Budget forecasts its impact on the economy to continue with these effects:
- A predicted deficit of $213.7 billion
- Unemployment reaching eight per cent
- Restricted international borders
- Economic growth of 4.25 per cent next year.
The strata sector, like all others, is touched by the pandemic and with the rollout of a vaccine not anticipated to be completed in the immediate future, the potential uncertainties for the sector may continue.
Currently, as per the Australasian Strata Insights 2020 report published by the City Futures Research Centre, the proportion of people living in apartments in New South Wales is 15 per cent, for Queensland it is 7% and in Victoria it is 8%.
Construction gets a boost
The Treasurer has extended and expanded the First Home Loan Deposit Scheme, which, combined with the earlier introduction of the HomeBuilder Scheme, will boost prospects for the construction sector, including strata properties.
First Home Loan Deposit Scheme
This initiative is designed to help first home buyers get their foot on the property ladder. The scheme eliminates the need for lenders mortgage insurance (the Government assumes 15 per cent of the risk) for first home buyers with a 5 per cent deposit. The Budget announced an extension to the existing scheme of an additional 10,000 people with a rise in the maximum cost of properties.
In terms of eligibility, applicants cannot have previously owned a home and need to earn less than $125,000 for singles and less than $200,000 for couples.
This is the revised upper limit cap rate for property prices, which includes houses, townhouses, apartments and off-the-plan projects:
- Sydney – $950,000
- Melbourne – $850,000
- Brisbane – $650,000
- WA, SA, NT, TAS – $550,000.
The price caps are lower for regional areas and vary from state to state. If you want to search for your suburb, you can do so here.
This program, which is designed to stimulate jobs in the building sector, contributes $25,000 towards the cost of a new home build or a renovation of an existing property.
Strata owners are eligible, provided they meet other requirements:
- Renovations that cost a minimum of $150,000 and a maximum of $750,000
- Dwelling value cannot exceed $1.5 million prior to the work beginning
- Sign a contract before the end of December 2020
- Earn less than $125,000 or as a couple less than $200,000 per annum.
Implications for strata owners
It is vital that you check the by-laws or building rules in your property before you seek permission for improvements or renovations. You need to consider whether your changes are structural or could affect common property.
In practical terms, renovations may need owners corporation approval. You should contact your strata or building manager to discuss your intentions before you act or sign contracts.
Another issue is to notify neighbours, residents and the committee about the impacts of parking for tradies and builders, as well as any potential noise issues. It’s also important to remember to modify your insurance in accordance with your renovation.
As always, the key to keeping everyone happy in a strata community is following the rules and protocols and making sure you communicate what is happening.
Finance for affordable housing
The National Housing Finance and Investment Corporation is providing an additional $1 billion to support the construction of affordable housing. Strata properties can help improve stocks for affordable housing and this is a welcome measure.
Indigenous Home Ownership Program
More than 360 construction loans for regional Australia will help Indigenous Australians secure their own homes. The organisation Indigenous Business Australia will receive $150 million in additional funds to extend its existing program.
Financial support for strata renters
Federal programs JobSeeker, JobKeeper and JobMaker are helping renters pay their rent through job-supporting incentives and subsidies designed to counter the effects of the pandemic on business. This is good news for strata owners who are investors. Otherwise, their tenants may seek rent holidays or reductions if they don’t have the income to pay their rent.
Strata owners may benefit from personal tax cuts
While not specific to the strata sector, personal tax cuts will provide relief to strata owners who pay personal income tax. Such strata owners will be more readily able to pay levy contributions and keep maintenance up to date.
Stage 2 tax cuts have been brought forward from 2022. They are worth $1,215 per year for a person earning $90,000 a year.
If the Stage 3 cuts are implemented early, a person earning $90,000 a year will get a further $1,125.
While many strata owners are self-funded retirees, there is a significant section of strata owners who are in employment and are Pay As You Go taxpayers. For these owners, personal tax cuts will create some relief.