First home owners Grants – Do they work? 30/04/13

There is talk in Victoria at the moment that we will be seeing a $10,000 first home owners grant and a reduction in stamp duty for first home buyers. I’m not going to mince words here either folks, it’s about bloody time!

I just read an article Robert Larocca of REIV fame just posted about this very subject. The basis of what he had to say revolved around a tax on the group that could least afford it being unfair. When you think about it he is pretty right too. First home buyers scrimp and save to put a deposit together only to have a large part of it chewed up by a State government tax. So in reality for the first home buyer, it’s not just saving  up 10% of the purchase price, they also have to cover legal and settlement costs, bank loan establishment costs, mortgage insurance if they only have 10%, and then they have to give the Government a fat slice around the 5% mark of what they buy. And you wonder why first home buyers complain about it being tough.

Banks won’t lend first home buyers money unless they can establish they have enough to cover all of this and 10% at least nowadays. How much easier do you think it will be to get a loan if you had an extra $10,000 in your account and only a 2.5% slug from the state in Stamps? A lot easier! All of a sudden you need less actual money in your account to qualify for a loan and that means you can get in to the game and buy something. So if it’s so great, why are there so many that complain about it and call it a hand out and a bad thing? Well, in short, these people will find fault with anything I guess. A combination of inexperience, tunnel vision on certain issues, coupled with ignorance on certain aspects leads to a knee jerk whine. Huge statement I know, but let me address a few of the statements I’ve read about how bad it will be.

You may as well just hand the money to the developers- Yes, it’s true that there is a game in play with buying new or off the plan where developers and property marketers get massive commissions on some projects. Might I suggest that the easiest way to fix this is to buy at market rate and to negotiate? Sure, new stock is almost always quite expensive stock, but no price is fixed in stone. Buy new property through a real estate agent, negotiate before you buy. Shop around the house and land package guys and wave your dollars under their nose. Provided you buy the property at or below actual market value, what do you care how much the developer makes? If you can’t make this happen on your own, why not hire a buyer’s agent to help get you there?

Grants just drive property prices up- If there are more people looking to buy something, then the price of it goes up, simple. Two things to remember here, firstly, we have a lot of land opening up through the west and the north as well as into the east. Lots of land means lots of choice. More choice means more competition. More competition means better pricing. Secondly, there will be MORE people buying. I thought that was the aim of an incentive? Isn’t it?

There are lots of other whinges, but these two are the most common. Simply put the grant and the stamp duty reduction appears to be targeted at new homes for first home buyers. So they won’t be buying large established homes in the inner east, so those prices won’t be skyrocketing. The newer areas will open up, the inner areas will be prone to a little more density, but it’s nothing they can’t handle. If your real fear is that the grants will cause others to pay too much, or overpay for properties, then I suggest these people learn how to buy property by negotiating a fair and proper deal that suits them financially, rather than complain about how it can’t be done. I do it regularly for my clients most weeks.

The key thing is that more people will be able to buy because they will now qualify for loans. This will drive purchases in outer areas and stimulate the construction economy and all that flows from it. And if we are lucky, the State Government may realize some more rail infrastructure in these areas wouldn’t go astray. We can only hope. Negotiate strong but fair and have fun.


Garry McPherson

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2 Responses to this article

 
Steven Hudson May 23, 2013 Reply

Gary
Great rant, however some of your quotes are off the mark
1. A buyer only needs 5 % deposit
2. Loan Insurance is needed when you have less then 20% deposit.

cheers

steven

 
Garry May 23, 2013 Reply

Hi Steven,
Thanks for the feedback.
It’s true you can get the job done with 5% down, I used 10% as a guide because as you know the greater the deposit the easier to obtain the finance and the lower the LMI. Finance is a tricky thing and let’s face it , if you know your way around it I am sure somewhere out there they are still doing 100% finance contracts and Val over contract lends. Not being a mortgage broker or Fin planner I refered to what most see as a commonly accepted 10% down scenario, so yep I generalized a little. It is first home buyers we are talking about here not experienced investors .We all have to start somewhere.

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