Sale of new residential property
subject to GST.
Under the proposed GST, the sale of new residential property will
attract a 10% GST. However, the sale of existing residential homes
and land by private owners would not be subject to GST.
Net effect after the abolishment of Whole Sale Tax (WST) should
be approximately 5%. Offsetting the introduction of a GST is the
removal of WST on certain materials used in constructing and finishing
a home.
The federal government has estimated that the cost of a new home
should increase by approximately 5%. This equates to an additional
$5,000 on every $100,000 paid. A cash payment of $7,000 is proposed
to cover the additional cost of a home to eligible first home
buyers.
GST of 10% would apply to services.
Most services associated with the sale and purchase of a property
would attract a GST. These include real estate agent, valuation
and legal fees. While council rates would not be subject to a
GST, non core council services would attract GST.
Stamp duty on residential property sales to remain. Stamp duty,
a significant cost to property transfers of both business and
personal nature, will remain under the current GST proposal. Stamp
duty on mortgage documentation is to be abolished.
First Home Owners
Scheme (FHOS).
The FHOS would be introduced to maintain housing affordability.
A $7,000 up front cash payment available from 1 July 2000 is payable
to eligible applicants upon the purchase of an existing and/or
new home. Eligibility is restricted to the following criteria.
- Must
be buying your first home (house, unit flat etc) in Australia.
If married neither you nor your spouse can have owned a home.
- Applicants
are not means tested.
- The
first home owner must start living within the home within a
reasonable period. Only paid on principle place of residence.
- Must
be an Australian citizen or allowed to live permanently within
Australia.
Foreign investors
would pay more.
The Foreign Investment Review Board only permits foreigners to
purchase new residential property. Accordingly, GST would be paid
by foreign investors. The $7,000 lump sum first home owner scheme
will be restricted to Australian citizens or permanent residents.
This could have an impact on those markets which attract a high
percentage of foreign investors. However, it is important to note
that by world standards Australian property is relatively cheap.
Pre GST demand on materials and labour. The anticipated increase
in residential construction pre GST may lead to a shortage of
labour and materials. This may drive building costs up significantly,
increasing prices.
Increased sales volumes are predicted to occur in the developer
market. Given proposed price rises, increased sales volumes are
predicted. Developers that target first home buyers are likely
to perform better in the short term than those who target home
owners who are upgrading.
Accordingly, builders who focus on home owners rather than new
entrants to the market may be disadvantaged. Their sites are in
premium locations which further distances the price from first
home buyers.
Post GST equilibrium effect.
Post GST attention is likely to turn to the resale market (which
is not subject to GST) once existing new stock has been sold.
Increased sales volumes and price growth within the market should
continue to occur until such time as both the new and resale markets
reach an equilibrium, with prices for existing and new homes equating.
Uncertainty prevails.
The details regarding the GST are not set in stone. There are
confusing aspects and differing interpretations of the GST package.
The great unknown is what impact will the GST have on the Australian
economy in the long term and in turn the property markets. Lobby
groups within the property industry are expected to push their
claims prior to the introduction of the GST. Accordingly, GST
is subject to passing through a hostile senate with possible changes
introduced by the Democrats.
