THE RECENT DECISION BY THE WA GOVERNMENT TO INCREASE THE FIRST HOME OWNER GRANT ON NEW DWELLINGS TO $10,000 AND REDUCE THE GRANT ON ESTABLISHED DWELLINGS TO $3,000 MEANS EVERY STATE AND TERRITORY IN AUSTRALIA HAS ANNOUNCED OR ENACTED PLANS TO SHIFT THE GRANT IN FAVOUR OF PURCHASING NEW DWELLINGS.
The $7,000 difference between new and established dwellings is not as significant as changes made in other states. FHBs in NSW are potentially more than $30,000 better off when purchasing new instead of established because of stamp duty concessions and higher grants on new dwellings. In QLD and Victoria, there are incentives of $15,000 and $10,000, respectively, to purchase new rather than established.
But, as with every change to first home buyer incentives, WA property markets will be effected.
In the immediate short-term, a FHB looking at new dwellings may delay signing a contract until after September 15 to receive the extra $3,000 grant whilst FHBs looking at established may wish to purchase a home before the grant declines. Despite a lift in stock levels in Perth in recent months, stock levels are still relatively low. Therefore, the ability of FHBs to bring forward their purchase may be limited.
Over the longer term, the announced changes will have broadly two consequences: it will affect the type of product purchased (i.e. new or established); and it will affect the timing of purchases. The changes will have no noticeable effect on encouraging people that were not considering home ownership before the change, with, at best, this category $3,000 better off than before the changes.
Treasury makes no reference to timing and instead focuses on how many potential FHBs that were intending to buy established will now purchase new. The $7,000 difference doesn’t sound like much compared to the median FHB dwelling price in Perth of $430,000, but once you consider that lenders will often consider the grant as part of a FHB’s savings and deposit, it becomes a bigger chunk of money. Treasury, therefore, estimates that 800 FHBs per annum will switch from buying established to new dwellings. That is, approximately 5-7 per cent of FHBs who typically purchase established dwellings will now purchase new dwellings, and rather than 75 per cent of FHBs purchasing established, around 70 per cent will. And given that Treasury don’t expect the measure to have too great of an impact on changing FHB preferences, the change is expected to save the State Government an average of $30m per annum.
What Treasury doesn’t mention is that FHBs that switch preferences are more likely to be buyers at the lower end of the market that use the grant towards part of their deposit. Keystart eligible buyers, for example, will be particularly attracted to an additional $7,000 for purchasing new rather than established as in some cases the minimum deposit is just 2 per cent.
A secondary impact is that the changes will allow FHBs that already had their eyes set on new dwellings to purchase the home sooner. The typical FHB saves an average of $250 each week towards a deposit, therefore, the extra $3,000 allows the average FHB to purchase three months before they planned. Although, in the current market many new dwellings are presold and do not require the full deposit until settlement, potentially an additional 1,000 FHBs will be in the market for new dwellings in WA.
At the same time, some FHBs that are intending to purchase an established dwelling and use some of the grant towards the deposit will be $4,000 behind and will have to delay their purchase.
Overall, the positive effects on the new dwelling sector will also be partly offset by a decline in existing home owners looking at new dwellings. A number of existing home owners may find it more difficult to sell their home and decide to stay put or existing home owners that were looking at new dwellings may purchase established as there are less buyers to compete with. The indirect impact on existing home buyers is important to consider. Existing home owners make up two-thirds of customers in the new dwelling market and they won’t move if they can’t firstly sell their existing home.