20 May 2010

Can’t afford to buy your first home? Maybe you can!

The Australian government has laid out massive incentives hoping to make home ownership more attractive – and attainable – to first-time buyers, who were previously outpriced. In some cases, they might have more than 10% of the purchase price refunded. Kit Kadlec reports

Like the post-Christmas markdowns at retail stores this month, the Australian housing market is having a sale of its own for first homebuyers – and it’s for a limited time only.

The government recently boosted its First Home Buyer Grant of $7,000 by doubling it for purchases of existing home, and tripling it for new ones. Some states are offering even more local incentives and that adds up to more than $30,000 returned to many buyers, depending on where and what they purchase. Include the savings offered by some states on stamp duty and it’s even more.

“Anecdotally, there’s a lot more interest,” he says. Kreitals says he thinks many buyers are still waiting, knowing they are likely to have more time to take advantage of the offer.

Some buyers don’t need to wait, though. In Adamstown, outside Newcastle in NSW, four out of seven units were sold within a few weeks, all taking advantage of the $21,000 bonus.

“There are plenty of dark clouds out there. This is the ‘silver lining’.”

Constant media reports of inflated house prices and an ‘iffy’ economy may have some buyers downhearted, but these latest government incentives have already made their mark. Finally, those in the property industry have some good news to work with.

“There are plenty of dark clouds out there,” says Quartile Property Network managing director Brett Johnson. “This is the ‘silver lining’.”

Growing curiosity

In just the first month of the grant boost, agents were seeing greater interest – and in some cases, increased sales.

“We’ve definitely seen a significant increase in sales due to the grant,” says Darren Latty, an agent of PRDnationwide Penrith in Sydney’s west. Other sales agents have had similar reports since the grant was introduced.

Jock Kreitals, manager of policy for the Real Estate Institute of Australia, says there aren’t many statistics yet available to confirm any national impact, however he has heard from many in the property industry that there’s a growing buzz of interest from buyers since the grant became available in mid-October.

“They’re selling like hotcakes,” says Mark Kentwell, residential property director at PRDnationwide in Newcastle.

While there’s a lot to be excited about, that’s not to say there isn’t any risk. In fact, buying a house that’s poorly placed or overvalued could result in a net loss even with the grant. And becoming a homeowner isn’t something for someone who’s not financially prepared.

But this is an opportunity available to Australians who have never owned a home. It could open the door to what seemed an impossible market just months ago. It might also have a positive affect on the property market as a whole, boosting home prices for existing investors as well.

“Clearly, it’s succeeding in stimulating a more optimistic outlook for people trying to get into their first home and counteracting some of the pessimistic air of the last few months,” says Property Investors Alliance managing director Justin Wang. “But equally important, it’s also a stimulus for the residential property investor as it will be another driver to assure a higher capital gain in their investment as the doubling of the $7,000 federal First Home Owner Grant to $14,000 for established properties, and its tripling to $21,000 for new ones are going to be quickly factored in as increases in real estate prices.”

The details

Grants made to first homeowners are nothing new in Australia. As the chart on the following page shows, since 2000 even a $7,000 grant has encouraged many buyers in places like Sydney’s western suburbs. But the latest government efforts are unique in many ways – especially size – and require some close examination.

In order to qualify for this grant, at least one of the applicants must be 18 years old or over, and at least one must be an Australian citizen or permanent resident. Just as important, no applicant may have owned any kind of property prior to July 2000, including one solely for investment. Since that date, applicants for the grant are allowed to have owned one investment property or more, or held an interest in them, given that they themselves did not ever live in any of them.

If you can get past that point, it’s likely you can qualify for this grant. What that entitles you to depends on what you want to purchase. If you buy an existing home, the grant entitles you to a total of $14,000. Those willing to look a bit further away from the CBD and buy a new home either off the plan, or buy the land and have a home built, can ‘win’ $21,000 or more.

While there’s a time limit on this grant, there’s also a financial limit. That means that those hoping to wait until later this year, and prior to the 30 June deadline, might end up missing out altogether even if they apply within the correct timeframe. The funds available nationally were limited to $1.5bn at the time this magazine went to print, with no indication that more would be made available. If that money runs out before 30 June, the grant opportunities will run dry.

Investor or owner-occupier?

Another thing to consider is that you must live in this home for at least six months within 12 months of completing the transaction. Failing to do so could result in some major fines, equalling more than $70,000 in some cases. But after that six-month period, owners are free to vacate the property and rent it out as an investment.

While the measure might be geared to those looking to own their first home, it’s also there for investors who can see this as a great time to purchase a place in what has been a buyers’ market.

“Combined with the sharp decrease in interest rates, for people who can meet the new tighter parameters on mortgage lending, this presents a great time for investment,” says Wang, an advocate of investing in residential property as a means of wealth creation, rather than just buying a property as a home.

As some of the case studies featured in this issue show, there are also many people who just want to find a place where they can live and raise a family.

But even those looking to live in the property for a while should consider the longer term investment considerations, says Wang.

“For new homebuyers and residential property investors alike, location is of even more critical concern than ever in buying a residential dwelling, especially during the current period of extreme volatility,” he explains.

“The first homebuyer should buy with future flexibility in mind for when they may want to upgrade their home or use their first home as the beginning of an investment portfolio.”

So what are you waiting for? Let the journey towards home ownership begin! YM

Percentage of first homebuyer dwellings financed – September 1998 to September 2008


Driving distance from Sydney CBD

FHOGs for $7,000 approved

Additional FHOGs approved*

First Home Plus approvals

Total value of benefits

Median house value

Average annual growth

Liverpool 40 km 6,148 466 5,943 $93.5m $325,000 9.1%
Campbelltown 57 km 4,777 254 4,894 $66.8m $255,000 8.2%
Wentworthville 27 km 4,282 148 3,698 $66.1m $435,500 8.8%
Blacktown 38 km 4,161 135 4,038 $60.1m $318,000 9.8%
Cabramatta 44 km 4,110 51 4,078 $53.2m $360,500 9.9%
Gosford 74 km 3,547 149 3,525 $50.4m N/A N/A
Mt Druitt 51 km 3,719 117 3,697 $49.3m $302,000 10.2%
Bankstown 29 km 2,926 171 2,871 $42.8m $415,000 7.3%
Wagga Wagga 458 km 3,450 143 3,834 $42.2m $289,250 8.3%
Quakers Hill 43 km 2,567 320 2,213 $42.0m $380,000 9.3%
Baulkham Hills 31 km 2,454 108 1,724 $40.3m $525,000 8.1%
Kellyville 37 km 1,798 895 1,291 $40.0m $545,000 13.2%
Hornsby 25 km 2,585 85 1,930 $40.0m $577,500 8.1%
Penrith 56 km 2,737 21 2,838 $38.9m $312,500 9.1%
Parramatta 24 km 2,386 69 2,523 $18.6m $468,000 8.5%
Wyong 106 km 2,244 428 2,645 $36.1m $312,500 9.8%
Dee Why 18 km 2,485 94 1,619 $35.8m $943,500 10.7%
Fairfield 34 km 2,389 145 2,409 $35.6m $322,500 9.2%
Hinchinbrook 48 km 2,534 125 2,194 $35.2m $355,000 9.0%
Glendenning 44 km 2,529 116 2,251 $34.7m $319,000 9.1%
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