There has been much speculation about the first home buyer’s grant halving at the end of September and ending at the end of the year. On one day the media talks about prices diving and the next it tells us that prices will be steady, while the next it tells us of prices rising. What about interest rates… what if these are raised? Then there will be no boosted Government Grant and no low interest rates… will this make property unaffordable? With everyone guessing what will happen next I thought I would share my view.

Owning a property is not easy… it’s a long hard slog of ups and downs. Interest rates up and down, the economy up and down, tenants in and out, employment on and off, ongoing associated costs etc etc… So why do we do it? Owning your own bricks and mortar is the Great Australian Dream. It doesn’t matter what you own, whether it be the home you live in or an investment property, the satisfaction of owning your own property for many is worth the pain required in saving, repaying the mortgage and one day having the home paid off.

In 2006, 32.6% of Australian homes were owned outright, that’s 2,478,264 households with no mortgage to pay. There were also 32.2% of Australian homes, 2,448,205, that were in the process of being purchased and had a mortgage which they were currently repaying. There were also 27.2% of households that were owned by investors and had tenants renting them. That’s 2,063,947 Australian homes. The remaining 8% were unaccounted for.

We also are aware that most capital cities currently have very low vacancy rates, although this has been eased over the last 12 months as more home buyers have entered into the market due to low interest rates making the purchase of a property more affordable. Increased rents has also meant that the gap between rental repayments and mortgage repayments was closing and the Government had boosted the First Home buyers grants, encouraging more First Home Buyers to take the plunge into property ownership.

The supply of future development is also going to be limited while developers fight with local councils and banks for approval and funding.

So when the boosted First home Buyers Grant expires at the end of December this year, many previously thought that low interest rates were going to continue to propel the number of home buyers into the market as the record lows have greatly assisted with the affordability of property, HOWEVER, if the economists are right and the RBA (and the banks) start to move interest rates higher before the end of the year and start to scare people into thinking that we will be back up to 7% before the end of 2011, then this will cause more future home buyers to pull out of the market and look for rental accommodation. Rents will increase thus creating a better return for the property investor thus bringing the property investors out of hiding and back into the market to reap the rewards of greater returns while still having the ability to take advantage of the tax deduction incentives of owning an investment property.

What does all this mean…. Higher rents, higher property prices and greater demand with less supply.

Will this happen? I don’t know but it sure could and all the elements of a mini property boom are on the cards.

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With a recent review of surveys and media articles in the press over the last 2 months, it seems that everyone agrees on one thing at the moment… Property investors are starting to come out of hiding.

So the first question we have to ask is what scared them away, especially with interest rates so low and rents continuing to increase. The answer is the Government. How? …The introduction of the Boosted First Home Buyers Grants. These boosted grants have caused a flurry of home and apartment purchases by first time property owners. Many have been renting and with the opportunity to switch to ownership without a large difference in monthly outlay, due to interest rates currently being so low, the step from tenant to home owner has been a fairly simple one…especially when the Government has been so generous with their First Home Buyer handouts. These boosted grants have caused too much competition in the current market and property investors are waiting until fewer home buyers are competing with them.

The boosted grants were meant to have ended on the 30 June 2009, however the Government took it upon themself to extend it to the end of December 2009, with a reduction in the increase from the end of September 2009. The slowdown in home buyers is expected and the increase in property investors will most likely occur.

Mortgage Choice recently ran a survey that found 3 out of 4 Australians that are planning to buy an investment property in the next 2 years were waiting for the FHOB to expire. Mortgage Choice claims that many of their clients that are looking at purchasing an investment property now are doing their homework and determining how much they can borrow, so when 2010 arrives, they will be ready to act.

Other results from the survey included:

• 37% of property investors rated their level of confidence in their states housing market as “high”, 57% rated it “moderate”, 6% low and 1% very low. Queensland respondents were most confident about their state’s housing market, followed closely by Victoria.
• 75% of respondents saw property investment as a better than investing in the share market
• 49% were looking to own two to three properties
• 47% said they were intending to keep it for 10 years or longer while 41% were planning on five to ten years

When purchasing their investment property, the features respondents considered most important in order of preference were:

• price;
• locality – convenience to amenities and transport;
• number and/or size of rooms;
• locality – prestige;
• features – such as driveway access, garage, swimming pool, backyard, fireplace and so on;
• aesthetic appeal;
• age of the property; and
• green/environmental aspects or initiatives.

There are a lot of positive factors at investors’ fingertips – historically low interest rates alongside historically low rental vacancy rates, greater demand than supply, a number of extensive infrastructure programs around the country, increasing rents, healthy migration levels and relatively stable housing prices… so I tend to agree with the outcome of the survey… it will be interesting to see what happens over the next 6-12 months.

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Developers in Victoria are concerned that demand for new property up until 30 June 09 may drop as more first home buyers wait for the new grants to be available from 1st July 2009. Currently new home buyers will recieve a total of $26,000, however from the 1st July this is going to increase to $32,000. The 6 week gap of subdued activity may force developers to offer their own “subsidies”, which is exactly what Devine Property has done. They weren’t going to wait around for the next 6 weeks for the Governments announcmenet to take effect. Instead they have taken the innititave to offer the incentives immiedietly out of their own profits ensuring that there wouldnt be a drop off in demand for their developments.

Luke Hartman, Devine’s Victorian General Manager has said that the current times have been the best they have seen for first home buyers. Devine is targeting buyers aged 25 to 39 who had double incomes. With a 50% increase in sales since October 08 when the boosted grant was immplemented, it looks like Devine are oncourse for another successful year.

In April 09, Victoria saw almost 4,500 first home buyers come into the market with about 75% of those looking to buy established property. Victoria has the most generous boosted grant scheme compared to the other states.

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It has been announced that NSW is the hot spot for first home buyers at the moment with a 50% increase in purchases by First Home buyers from February to March this year. There were 6084 First Home Buyers in NSW.

The total number of home buyers across the country rose from 12,664 in February to 17,265 in March. This is assisting with the recovery with the housing minister stating that there shuold be a flow on effect from next year.

The boost has been of great assitance, but dropping Sydney property prices plus increased rents has almost forced First Home Buyers to make the decision to buy instead of rent. Sydney median rents are now up at $390/week as of March 2009.

So if you are looking to buy a property, then make sure you have done your research, can attain a loan and when bidding, make sure you don’t allow your emotions to take control.

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“First home buyers who qualify for the First Home Owner Grant (the grant) may also be eligible for an additional payment known as the First Home Bonus. To be eligible to receive the bonus, the value of the property must not exceed $500,000. ” (SRO)

So from the 1st July 2009 through to the 30 June 2010, the Victorian State Government will provide an additional $2,000 for FHB of established property and $11,000 for FHB of new homes. This is on top of the Federal Government First Home Buyers Grants.

In addition to the above, the state Government is also encouraging First Home Buyers to purchase in regional Victoria. There is an additional $4,500 on offer for those that buy in Regoinal Victoria. Here is a link of all the municipalities that comply with the additional Regional Boost: http://www.sro.vic.gov.au/sro/srowebsite.nsf/taxes_firsthome_bonus_regional.htm 

This is a very proactive step by the Victorian State Government and really encourages more people to buy, it helps spread the interest to new growth corridors and encourage developers to continue to bring new product to the market. All in all a great result for the residents of Victoria.

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The federal budget was announced tonight with an announcement that First Home buyers will have another 6 months of boosted grants. 3 months at the full rate and 3 months at a halved rate. The boosted grant will end 31 December 2009.

I really don’t understand where the Rudd Government is going with this… the extension should have been alot longer and been more focused on new property. Treasurer Wayne Swan said that the initial boost was a success but wasn’t prepared to continue the boost to help support the Australian economy for more than 3 months at the full rate.

I understand the boosted grant can’t continue forever, however the major impact to the overall economy is far greater than the cost to the government in the short term.

So far, according to Wayne Swan, the first home owners boost had already helped 59,000 people achieve the great Australian dream. One would now assume that some panic would be removed from the first home buyers market while first home buyers have a little more time up their sleeve to find the right property for them.

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It looks like the boosted First Home Owners Government Grant has done more for the Australian economy than anyone expected with a huge 42% increase in the number of First Home Buyers in NSW according to BIS Shrapnel. Although recent reports indicate that property prices have fallen, futher research tells us that a number of suburbs in Sydney have actually increased in value over the last 12 months. The more affordable property in Sydney property market is definetly on the way up with a rush from FHB. The upper end of town is feeling the effects of the economic down turn the worst with suburbs like Double Bay and Mosman falling more than 8% over the last 12 months and expected to fall further. Once again these drops are attributed to the higher priced properties in the area which may have been selling at $3.5m 12 months ago but in some instances the same proeprties are now worth a few hundred thousand dollars less. Properties in these regions that are sub $1,000,000 are still selling very well. After walking into 2 properties in Rose Bay over the weekend, both agents indicated a stong demand for properties at this price range with both properties having over 30 groups through on the weekend open house.

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This was the title of a press release that we sent out in early February. the point of the press release was to advise that the market was going to go into shock when it came to the number of first home buyers hitting the market with the anticipated end date of the boosted First Home owners grant. Needless to say, we were spot on and probably the first to predict it, although a fairly obvious predicition. We had coverage on Channel 9 news and in a number of local papers such as the North Shore Times in Sydney.

We predicited this was going to occur based on the grant expiring, rent becoming more expensive then mortgage repayments in some areas and very low interet rates. Our predicitons were confirmed with agents and developers over the last 2 months stating that anything under $600,000 was flying out the door. The rush was on from First home buyers to secure a property before the grant expired. Further to this the banks have been making it difficult for some as lending criteria has changed and the huge demand for new loan applications has slowed banks cycles rates dramtically.

Now we will wait to see how the Government reacts to what has occured since October 08 and what adjustments if any they will make to the boosted FHBG.

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The boost to the first home owners grant will not be extended beyond June 30, Prime Minister Kevin Rudd says.

“The first home owner’s boost, as you know, we have indicated that will conclude within a very fixed and finite time frame,” he told reporters in Perth.

“It’s had strong useful results so far, but I have got to say all good things must come to an end.”

This is a poorly timed comment by the prime minister, with 2 more months to detemrine the effectivenes of the boosted FHBG. Many Real estate agents and mortgage brokers are already commenting on the poorly timed comment. With so many back downs by the Prime Minister Rudd in recent times, the likely hood that he may reverse this decision is relatively high. It seems that putting a stop to the only inititave that was helping the Australian economy is a disasterous mistake.

For those first home buyers – don’t feel pressured into buying a property before the grant ends…. if you are ready, certainly take the leap… as the results of the grant not extending will most likely be another large increase in rental payments over the following 12 months.

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