Home Property Australia How the Federal Budget will impact the property sector

How the Federal Budget will impact the property sector

  • May 11, 2023
  • by Property Australia
The Treasurer Jim Chalmers after delivering the Federal Budget on Tuesday.

After 15 years, the economy has finally experienced a surplus, thanks to the positive global commodity market and the strongest job market in 40 years. Despite the challenge of high inflation, the government plans to inject approximately $15 billion in incentives and welfare to tackle the cost-of-living concerns.

So, how will this impact the property sector?

Housing

As a result of the Prime Minister’s recent announcement following a National Cabinet meeting last week, the budget will incorporate the proposed incentives aimed at promoting the expansion of build-to-rent (BTR) housing and enhancing the supply of new homes.


For newly qualified BTR developments that commence construction after 7:30 PM (AEST) on 9 May 2023 will have an increased rate for the capital works tax deduction (depreciation) to four per cent per year from 2.5 per cent.


There will also be a reduction in the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30 per cent to 15 per cent. The reduced MIT withholding tax rate is forecast at a cost of $30 million over the forward estimates. 

The proposed measures will be applicable to BTR projects comprising 50 or more apartments or residences accessible for rent to the general public. These homes must be held under a single ownership for a minimum of ten years before being allowed to be sold, and landlords must provide a lease term of no less than three years for each dwelling.

Although subject to confirmation, the new tax rate is expected to apply to all new BTR developments launched after this year’s federal budget announcement. As a result, any project that completes construction between 9 May 2023 and 1 July 2024 will be qualified to claim the rate from 1 July 2024 and beyond.

The Property Council anticipates that the next public policy improvement will be to introduce a 10 per cent incentivised tax rate for Affordable ‘Key Worker’ Housing to local and foreign investors who integrate affordable residences in their BTR communities.

The government will also enable an additional $2 billion in investment for more social and affordable housing by increasing the guaranteed liabilities of the National Housing Finance and Investment Corporation (NHFIC). The government will also amend NHFIC’s investment mandate to require it to take steps to allocate a minimum 1,200 homes in each state and territory within five years of the Housing Australia Future Fund commencing operation.

An additional $67.5 million will be put aside to boost homelessness funding to states and territories and provide $187.5 million through national partnership payments to state affordable housing services.

Starting 1 July, the Home Guarantee Scheme will expand to include two eligible borrowers, such as friends and siblings, and non-first home buyers who haven’t owned property in Australia for a decade. The scheme will also be available to Australian Permanent Residents along with citizens.

Population and net overseas migration

The latest projections indicate that net overseas migration will reach 400,000 in 2022-23 and 315,000 in 2023-24, as the country catches up from the pandemic’s effects.


This is a marked increase from the 235,000 forecasted in last October’s budget. Additionally, migration levels are anticipated to remain robust, hovering around 260,000 from 2024-25 to 2026-27. As a result, population growth is now estimated to be two per cent in 2022-23 and 1.7 per cent in 2023-24, an upgrade from the 1.4 per cent forecasted in the previous year’s budget.

Climate, environment and social

The Clean Energy Finance Corporation will receive $1 billion from the government to offer affordable finance and mortgages, in collaboration with private financial institutions, for energy-saving home upgrades.


Additionally, the Contingency Reserve will hold $300 million over four years from 2023-24 to support energy-saving upgrades to social housing, in partnership with states and territories.


The Australian Government will issue green bonds from mid-2024, which are fixed income bonds financing specific government programs with positive climate change and environmental outcomes. These bonds allow investors to support public projects contributing to climate and environmental goals.

Corporate tax and international investment

The government will expand the clean building MIT withholding tax concession to warehouses and data centers meeting energy efficiency standards starting 1 July, 2025.


Additionally, passive or low-risk interfunding transactions will be exempt from mandatory notification requirements and fees under the Foreign Acquisitions and Takeovers Act 1975.

Retirement living

The Budget supports better wages and conditions for aged care workers, with $81.9 million funding for a new Aged Care Act and $72.3 million for a stronger Aged Care Regulatory Framework. There is also a $139.9 million package to improve transparency and accountability through the Star Rating system and $12.9 million for food and nutritional standards enforcement.

The Budget increases Commonwealth Rent Assistance (CRA) rates by 15 per cent over five years, benefiting 1.1 million households, including older people in retirement villages and land lease communities. 

The government is set to invest $166.8 million for an additional 9,500 Home Care Packages, and $15.7 million to establish a single aged care assessment system. The Support at Home Program will start on 1 July 2025, with the grant arrangements for the Commonwealth Home Support Programme extended until 30 June 2025.

Student accommodation

The budget introduces changes to visas for international students in Australia. Higher education graduates of Australian institutions with eligible qualifications will now have two years of post-study work rights to increase the skilled labor pool, starting on 1 July, 2023. 

The work hour limit for international student visa holders will be reinstated to 48 hours per fortnight from the same date, except for those working in the aged care sector who are exempt until 31 December, 2023. These changes are expected to increase receipts by $800 million and payments by $185.6 million, including a $185 million increase in GST payments to the states over five years from 2022-23.

Infrastructure and cities

The government will conduct a 90-day independent review of its $120 billion Infrastructure Investment Program, with support from states and territories. 

A National Urban Policy will be developed to address equitable access to jobs, homes, and services, climate impacts, and decarbonisation, along with two new programs: a $159.7 million urban Precincts and Partnerships Program and a $211.7 million Thriving Suburb Program. These programs aim to transform suburbs, enhance liveability and prosperity in suburban communities, and provide oversight on National Cabinet urban planning matters through a new Cities and Suburbs Unit.

Training and skills

The Budget includes measures to support the Australian apprenticeship and construction industry.

These measures include the Australian Skills Guarantee, which aims to ensure that one in 10 workers on major government-funded projects are apprentices, trainees or paid cadets.

The government will also establish the National Construction Industry Forum to provide advice on key challenges facing the industry. In addition, a new non-financial support model for Australian Apprenticeships will be introduced from 1 July 2024. The total funding for these measures is $67.3 million over five years.