Superannuation changes taking effect 1 July 2022 and how it will impact the residential property market

There are currently two superannuation schemes in Australia that have provision for owner occupiers of residential property to either make a contribution or withdrawal from their superannuation balance for the purpose of buying their first home or downsizing from their current dwelling.

The names of these schemes and respective information are as follows:

1. First home super saver scheme link
2. Downsizing contributions into superannuation link

Due to a Treasury Laws Amendment that was passed in February 2022, the below changes will come into effect on 1 July 2022. As these demographics are a target audience of many of the residential properties we bring to market, I felt it was important to outline the related amendments made and how this will have a material impact (if any) on our local residential property supply and demand.

Here is a brief explanation on the relevant amendments made to both schemes.

First Home Buyers

• First home super saver scheme maximum releasable amount (increased up to $50,000)

The First Home Super Saver Scheme is one of several measures announced in the 2017-18 Budget as part of the Government’s package of reforms to reduce pressure on housing affordability.

The First Home Super Saver Scheme helps Australians boost their savings for their first home by allowing them to make voluntary concessional and non-concessional contributions into the superannuation system and withdraw those eligible contributions and an amount of associated earnings for the purpose of purchasing or constructing their first home. Concessional tax treatment applies to the amount that is withdrawn and used for this purpose.

As part of the 2021-22 Budget measures, the Government announced on 8 May 2021 that it would increase the limit on the maximum amount of voluntary contributions made over multiple financial years from 1 July 2017 that are eligible to be released under the First Home Super Saver Scheme from $30,000 to $50,000.

This change will help first home buyers save more quickly compared to other forms of savings for their first home with the concessional tax treatment of superannuation.

This amendment does not alter the limit on the amount of voluntary contributions from any one financial year that are eligible to be released (being $15,000).

The maximum amount of voluntary contributions that are eligible to be released are $15,000 per financial year and $50,000 in total. Contributions that exceed those limits are not eligible to be released. Eligible concessional contributions are discounted by 15 per cent to account for the tax that is paid by a superannuation provider as a result of receiving the contribution

Downsizers

• Reduced eligibility age for downsizer contributions?(from 65 to 60 years old)

Prior to the amendments, section 292-102(1)(a) provides that only an individual aged 65 years or over may be eligible to make a downsizer contribution.?

This Schedule reduces the eligibility age for making downsizer contributions from 65 to 60 years.

While there are several other amendments made in the same bill passed, these are the items that will have a direct impact on decisions made to transact on residential property for both demographics.

Here's how the changes relate to both demographics on a broader spectrum.

First Home Buyers | According to the ABS, in December 2021 the percentage of first home buyers as a ratio of loan commitments for the purchase of a dwelling was 33.6% of total lending volume which equates to $11.02 billion for the month.

While this is a large percentage of the total buyer pool, there are a few hurdles that restrict the use of this scheme.

The First Home Super Saver Scheme requires that only concessional contributions may be withdrawn (not compulsory contributions made by your employer as a percentage of earnings). So in order to be eligible for the scheme, in the financial years starting 1 July 2017, you may withdraw a maximum of $15,000 per year of concessional contributions made up to a total of $50,000.

There is no data to support the trends of concessional superannuation contributions, however, the ABS suggests from their last survey that "About one in ten managers and professionals used salary sacrifice arrangements, with their average contributions being about $235 per week in 2013–14. By comparison, less than 2% of sales workers salary sacrificed from their income into superannuation in that period. By age, salary sacrifice arrangements were used most often by employees aged 55 to 64 years, with more than one in five (21%) reporting these arrangements in 2013–14. Their average contributions were $257 per week."

In order to receive the full benefit of the scheme of $15,000 per year totalling a $50,000 withdrawal, a first home buyer must make additional concessional superannuation payments of roughly $331.73 per week. Data from the First Home Loan Deposit Scheme here shows an average household income for this cohort of $86,000, suggesting that the scheme is out of reach for the majority of first home buyers. Coupled with a requirement for this demographic to change their superannuation contribution behaviour and have no sovereign debt liabilities which would be deducted from distributions made, the scheme proves to have too many barriers to be effective on mass.

Downsizers | At the last recorded survey in 2016, the ABS recorded a total Australian population aged between 55 - 59 years old who would now be 61 - 65 to total 1,454,332 which is 6.21% of the population. At the time of survey, 73.7% of this age group were home owners which means that the scheme introduced, applies to roughly 1,071,842 people today. According the current ABS population clock which totals 25,724,818 this change applies to roughly 4.16% of our current population.

While there is criteria applicable to this scheme, typically the owner occupied dwelling tenure requirement of 10 years or more is easily met in order to offer eligibility of up to a $300,000 contribution from the proceeds of the sale of the family home into superannuation.

There are multiple scenarios to adjust for given government benefit payments, income test and requirement for equity release. However there is no denying that there is further incentive for this cohort to downsize their existing homes.

So how will this impact the residential property market in the short term?

Nothing should change dramatically, with further incentive to sell we'll likely see an increasing trend over time of the younger retirees downsizing from their larger homes once children have moved out, taking this opportunity to capitalise on concessional contributions as a transition to retirement and pension phase of their superannuation. While most downsizers opt to reduce debt, outgoings and maintenance, they typically aren't willing to compromise on lifestyle, often meaning they purchase large apartments in the same area that still cater to their existing requirements.

We should see this play out whereby the Luxury Boutique model of infill apartment developments remain in high demand and as we see an increase in superannuation contributions from the younger generation we can expect to see this have a more significant impact on demand for affordable dwellings which typically come in the form of high density apartments in close proximity to transport hubs.