The 2023 Federal Budget and Its Impacts on The Property Industry

The Government’s May budget focuses on improving the supply and affordability of housing by introducing multiple new initiatives. The key takeaways that have a significant impact on the property industry relate to the changes in build to rent incentives, affordable housing changes, and the increase in rental support.

Build to Rent Projects

The Australian Government has proposed several incentives for Build-to-Rent (BTR) projects. These include increasing the capital works depreciation rate from 2.5% to 4% for eligible new BTR projects where construction commences after 9th May 2023, and reducing the withholding tax rate from 30% to 15% for eligible fund payments made from 1st July 2024 by management investment trusts to foreign residents on income from newly constructed BTR properties. Essentially this will allow foreign investors from more than 130 countries to access concessional tax rates of 15% when investing in Australian BTR projects. These measures will apply to BTR projects that consist of 50 or more apartments or dwellings made available for rent to the general public, are held under single ownership for at least ten years before being sold and offer a lease term of at least three years for each dwelling. The government is currently seeking consultation on the proposed eligibility criteria, including whether there should be a requirement for a minimum percentage of dwellings to be offered as affordable tenancies.

Affordable Housing

Proposed in the federal budget are several measures to support social and affordable housing and increase access for home buyers. These measures include increasing the government-guaranteed liability cap of the National Housing and Finance Investment Corporation (NHFIC) from $2 billion to $7.5 billion to enable it to increase its support for social and affordable housing. Additionally, the NHFIC will be required to allocate a minimum of 1,200 homes to be delivered to each state and territory within five years of the Housing Australia Future Fund commencing operation. The eligibility of the Home Guarantee Scheme will also be expanded from July 1st, 2023, to include friends, siblings, and other family members who will be able to make joint applications. Finally, interest earnings on unallocated NHFIC funds will be redirected to support social and affordable housing, increasing further investment in this area.

Renters

As part of a package of budget measures aimed at boosting supply and providing relief to low-income renters, the Australian Government plans to increase the fortnightly payment of Commonwealth rent assistance for over 1 million recipients by 15%. The maximum rate of rent assistance will be increased by up to $31 per fortnight over four years, at a cost of $2.7 billion.