Under the terms of the HomeBuilder scheme, owner-occupiers can apply for a grant of $25,000 to use in the purchase of a new home. The scheme is open to first home buyers, but not to those intending to purchase an investment property. The grant can also be used to undertake renovations on an existing home.
Individuals who earn up to $125,000 per annum, or couples with a combined annual income up to $200,000, are eligible for the scheme. Contracts need to be entered into before 31 December 2020, with any building/renovation work required to commence within three months of the contract being signed.
For buyers looking to build a new property, the price is capped at $700,000 (including house and land packages). Renovations need to cost between $150,000 and $750,000 to qualify, while any property being renovated needs to be valued at less than $1.5 million before work begins. All work needs to be carried out under the supervision of a qualified and licensed builder.
What has been the take up of the HomeBuilder Grant?
The HomeBuilder Grant is being administered by state and territory governments under the terms of a national partnership agreement. However, as of July 2020, only South Australia and Tasmania are signatories to the scheme.
This has meant a delay in the scheme getting under way, and to date no grants have yet been paid out (the plan is for grants to be paid directly to applicants on completion of a first progress payment).
Some state governments have expressed concern that there is not sufficient clarity about how the scheme will operate, particularly when eligible applicants will receive funds, while some industry bodies have indicated that the three month period allowed for work to begin once a contract has been signed may not be sufficient.
In some instances, potential buyers have shown themselves to be hesitant about relying on the scheme, due to uncertainty about how it will operate and the precise timings of payments.
Will the HomeBuilder Grant achieve what it is designed to do?
There has also been doubt expressed in a number of quarters about whether the HomeBuilder Grant will actually be able to achieve the sort of impact that the government is hoping for.
One of the major criticisms has been that the scheme will simply bring forward renovations or new property purchases that were already planned, and so will not provide any long-term or ongoing stimulus to the building and construction industry once the initial surge in demand has been met.
Also, there is a view that the scheme does not provide sufficient help for first home buyers who do not already have significant capital saved towards a deposit. These two factors combined have led some industry observers to think that there is unlikely to be a significant expansion of the nation’s overall housing stock as a consequence.
There is also some concern that the scheme will lead to a sudden surge in the prices tradespeople and builders are able to charge for both renovation and construction work, causing a flattening of the market in other areas of the industry not covered by the HomeBuilder Grant.
However, the Federal Government’s response has been that HomeBuilder is not designed to operate in isolation, but rather to complement existing first home owner grant programs, stamp duty concessions and other grant schemes that the states and territories currently provide, as well as the national First Home Loan Deposit Scheme. With regard to a potential rapid increase in the prices being charged for building and renovation work, it has said that it expects competition in the industry to keep prices in check.
What will the HomeBuilder Grant do to property prices?
If previous stimulus packages are anything to go by, the HomeBuilder Grant may produce what is known as a vacuum effect in the Australian property market.
This is best described as a boom in buyer activity amongst people who had planned to buy new properties at a later date and who now bring their purchases forward as a result of receiving a grant or other assistance. This leads to an upsurge in demand when a stimulus comes online, which is then followed by a rapid and significant fall off in activity later in the cycle, when there are no new buyers to step forward and fill the subsequent vacuum in demand that has now been created.
This phenomenon has previously been witnessed in Australia when governments have stepped in to provide incentives in the housing market. For instance, it can be seen to have occurred in 2000 when a $7,000 first home owner grant was made available to coincide with the introduction of GST in Australia. A similar pattern was also observed in the wake of the 2008-09 GFC, when temporary additional grants of between $7,000 and $14,000 were made available.
In each case, new home buyer activity fell away sharply after the initial surge of interest, which was accompanied by an increase in overall dwelling values (as measured by the Australian Dwelling Value Index). This too, however, fell away again sharply some time afterwards, roughly mirroring the rate of fall in new home buyer loan volumes.
Is this a good time for first home buyers in Australia?
In terms of property investment strategies, what impact — if any — will the HomeBuilder Grant have both in the short and long term?
If the introduction of previous government stimulus packages is a guide, there is likely to be an increase in the cost of buying property in new developments, particularly for house and land packages, or areas where there is the potential for growth. Therefore, for anyone currently considering purchasing an investment property, this may be the right time, as previous experiences suggest there is likely to be a rise in dwelling values as the immediate effects of the stimulus begin to play out.
Likewise, for first time buyers there are a range of stimulus packages available, both via government sources and from developers, that can make it easier not only to purchase a property, but also to buy a home that is better located and ultimately worth more.
However, it can be difficult as an individual to access the full range of assistance and incentives that are currently available. That’s why you should talk to Power of Property, as our expert property advisers can access a wide range of packages that you might not necessarily be able to take advantage of if you are starting out on the journey to home ownership on your own.
If you want to find out more about a range of options available across Australia for first home buyers, our specialist property advisers are here to help. Call Michael Lawton on 0407 785 560 or Danielle Charlton on 0411 268 795, or book an online property strategy session at a time that suits you.