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Monday, August 25, 2014
Super Access for first home buyers article of interest
Super Access for First Home Buyers
Senator Nick Xenophon's proposed legislative changes to allow first home buyers to access their
superannuation funds for a deposit on their first homes have seen many different reactions from
property experts.
“With more and more Australians finding it difficult to break into home ownership, adopting the
Canadian scheme would make a difference to many thousands of Australians each year,” said
Xenophon.
The Canadian scheme allows first home buyers to extract C$25,000 for the purchase of their first
home, which must be repaid into the fund within 15 years.
The scheme has been supported by some industry groups and businesses and derided by others.
Property Observer took the question to two experts.
Firstly:
CATHERINE CASHMORE: MARKET ANALYST: Should first home buyers be allowed to access their
superannuation to fund the deposit on their first home?
Nick Xenophon, along with other groups, such as the REIA, is advocating a policy that will be
responsible for making housing affordability worse. The procedure in Canada allows eligible buyers
to withdraw up to C$25,000 tax-free from their retirement fund, on the condition that they pay it
back over a 15-year period.
If they fail to do this, the amount withdrawn will be taxed as per the income earner's tax bracket.
Currently, 35 per cent of Canadians fall into this category. However, according to the CRA, roughly
one out of two (47%) contributed less than the required repayment amount over the 2011 tax year.
The Government picks up the added income revenue windfall.
Buyers, buoyed by a rent seeking culture that fools the public into believing such policies are
designed to be ‘helpful’, over stretch their budget and are left to carry the can in weak economic
conditions. In short - you borrow money from yourself at 0% interest and in doing so lose 15 years
of compounding 'tax free' interest with average returns in the order of 7%.
Many low to middle-income individuals have inadequate funds to draw upon. So even assuming the
scheme were to be effective, the difference it can make to those that need the help is limited.
But the real ‘nub’ of the issue, which Nick Xenophon has failed to acknowledge, is that the Canadian
Home Buyer Plan was never intended to aid affordability. It was promoted by the real estate
industry following the 1990s recession to stimulate land values and benefit the FIRE (finance,
insurance, real estate) sector, along with its economic offshoots - renovations, furniture and
appliances, moving costs, tax revenue to government and so forth. The FIRE sector has lobbied to
keep in place ever since and also pushed for the threshold to be raised.CRAIG MACKENZIE: RP DATA EXECUTIVE GENERAL MANAGER COMMERCIAL,
Pros:
Buyers need genuine savings given the price of housing in cities Sydney and Melbourne and
the cost of renting saving deposit is extremely difficult, accessing superannuation would
make it easier
Genworth reports that 1 in 4 first home buyers need assistance from their parents to enter
the market, by accessing superannuation they remove the burden from the parents
In some instances tapping superannuation would mean that the purchaser doesn’t have to
pay LMI on their purchase which would reduce the cost of purchase
The retirement savings pool is one of the largest in the world unlocking a portion of it would
enable first home buyers to access one of the most basic human need, shelter
Superannuation is about forced saving for retirement, a home for owner occupation is a
long-term investment so the horizons are aligned.
Ultimately the position is neutral with the Canadian scheme seeing the amount withdrawn
from Canadian Registered Retirement Savings Plan’s (RRSPs) repaid over 15 years.
Cons:
Accessing Superannuation doesn’t address the key reason why FHB can’t purchase a home,
that is that it is too expensive in many areas particularly those areas close to city centres and
around major working nodes.
By accessing Super to purchase a home it would potentially increase home values further,
much like the First Home Owners Grant has
Utilising Superannuation would allow FHB to buy in a location they otherwise couldn’t afford
to, is this really a good policy given buyers should by in a location which is aligned with their
current means to repay a mortgage.
The Canadian scheme doesn’t appear to have any penalty or interest associated with
withdrawing that money. The amount is paid back over 15 years however, that is 15 years
over which that money could have compounded if invested elsewhere.
It should be noted that Canadian RRSPs are somewhat different from Superannuation as they are set
up by individuals and in most instances employers don’t contribute to the plan. It is about saving for
retirement however, there are no compulsory contributions from the employer rather an RRSP is set
up by the employee to save for retirement
source Right Finance Australia courtesy of ljgrealestate.com
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