First home buyers given new incentive
The Coalition have revealed a new housing scheme that will allow first home buyers to use their superannuation so they can alleviate the costs of entering property market sooner.
Under the proposed Super Home Buyer Scheme, first home buyers will be able to invest up to a maximum of $50,000 (up to 40% of their super) – although analysis from AMP and RateCity (see below) suggests few first home buyers will come close to this cap.
Under the Super Home Buyer Scheme, The Coalition predicts that the average first home buyer will be able to enter the market three years early
First home buyers will need at least a 5% deposit to participate in the scheme. If they eventually sell their home, they will have to return the invested amount, plus a share of any capital gain, to their super fund.
The scheme will apply to both new and existing homes, and will not have any income or purchase price caps.
The Coalition has said it will introduce the scheme by 1 July 2023, if it gets re-elected.
LMS Takeaway
This incentive was announced in conjunction with another scheme to allow older Australians to sell the family home and contribute the balance into super. Together, these two incentives will create new family housing stock (increase supply) and get more Australians into their first home sooner.
We think its a little disingenuous to focus on one policy announcement without the other, as you will hear snippets and soundbytes on the news
It will have a short term effect on keeping property house prices stable and also upwards pressure, but interest rates play a much bigger role in house prices
What about effects on your superannuation balance?
We would like to see more effective modelling scenarios from a long term property purchase, but in the following case study, we think the family who participates would be well ahead;
Family A uses $50k of their super to purchase a family home worth $800,000 . They hold the property for 30 years and raise a family. At the end of the 30 year term, they downsize, sell the property and contribute at least $50k (required) and up to $300k back into their super. Their superfund is replenished, and they’ve had a home for their family for 30 years.
They do not need to pay anything back to the government as they own all of the equity int heir own home (contrast to Labor’s policy we discussed last week).
Under current legislation, they pay no capital gains tax on the growth in value of the family home due to main residence exemption
The compound returns from $50k higher super balance being invested in the stock market for 30 years is significant but beyond the scope of this case study. The age old property v stock market debate. Worth discussing with your advisor.
Anyone want to hazard a guess as to what an $800k property purchased in Western Sydney NSW might be worth in 30 years time? Would they be able to contribute $300k into super from the growth in value of that family home at the end of the year 30 period? Lots of other factors, sure, but lets assume they’ve been diligent and paid off their mortgage over that same 30 year period. Let us know in the comments on our Facebook page!
