This week, the Victorian state government have made some changes to the first home owner’s grant. This is a question were asked all too often – What is the first home owner’s grant and should I get it?
In NSW, it will be interesting to see if they make any changes because it’s already a heated market. The government doesn’t like giving out free money, so the first home owner’s grant is a great concept. In this week’s episode, we’re going to cover the common questions asked and go through the positives and negatives of the grant.
What’s the first home owner’s grant??
It’s a national scheme funded by State and Territory Governments to make funds available for first home buyers to buy property. It has become an important tool to help people buy property. Now it’s a grant mostly for new properties across the state.
The Victorian government’s budget has said that stamp duty will be abolished for first home buyers for properties up to $600k on new and established properties. They’ve also expanded the first home owner’s grant on newly built properties but only for regional Victoria.
Queensland currently has a $20k grant, but it expires in June and goes down to $15k.
Benefit: Free money & a kickstart to your savings!
When you break down what you have to earn after tax for $20k, it takes a long time to save up the equivalent. So this is a great initiative to kickstart your savings.
Benefit: Getting into the market earlier
The major benefit is the compounding growth over time. If you buy a $500k property and don’t pay stamp duty, then the loan won’t increase over time unless you take money out, but based on historic figures the properties value could grow at between 4-8% per year. So the sooner you get into the market, the sooner you can reap these benefits.
Downfall: It can limit your buying choices
If you need to buy a new property off the plan it may limit your buying choices.
Downfall: The conditions
The conditions vary from state by state, but in Queensland, you’ve got to live in the purchased property for 6 months in the first year. If not, you’ve got to pay the grant back to the government because you didn’t follow the conditions. Opportunity costs could affect this because you’ll miss six months worth of rent, which could cost you a couple of thousand dollars in contrast to the conditions of an investment property. Note: Opportunity cost is a term for what else you could be doing with your funds in that time.
Neutral: Lack of diversifying
The only other negative is that you can’t really diversify, as you’ve got to buy where you live. If you’re trying to get into the property market, specifically as an investment, and you live in Sydney at the moment, $20k (if it was available for example) won’t go that far if you’re looking at buying for $1mil.
How does it affect the market and what are the trickle down effects from that?
There’s not a lot of data on this but the current state of first home buyers is that last year there were only about 7,000 first home buyers in a market where there are about 450k people buying. So it’s not a huge market. It 2009 Residex did a study and found that in 57% of suburbs where the average house was below $350, who used the $7k grant distorted the market – pushing up the value due to the extra $7k the buyers were getting. So can also affect the market and prices around it.
Final question, should you get the grant?
It depends on your situation.
- It is tax-free money and can help you get into the property market quicker.
- If you have no deposit it could help you get into the property quicker, provided you have enough funds to afford the extra costs as below.
- Owning you have to pay for rates, insurance, maintenance, strata fees extra costs and just remember because your current repayments are the same as what you could rent for, doesn’t mean it will always be that way.
Don’t be irrational, look at the fundamentals.
If you want advice for your individual situation, get in touch. We can give you a FREE Property Plan and review and see what options best suit your situation. Contact us here, or call Jayden on 0421 874 357.
The exciting announcement is that Louis is going to be doing a new podcast going forward called ‘Self Made Millenials’. He has noticed that a lot of millennials don’t have the information on how to take control of their money. Looking at life, finance hacks, and it’s going to be more around reframing perspectives and running through practical hacks towards this. Jayden will continue with Rentvesting focusing on the property side while Louis will look after Self Made Millenials focusing on the lifestyle side of it.
The Rentvesting Podcast, available on iTunes, was created by Red & Co’s Jayden Vecchio and expert financial planner Louis Strange. Together, Jayden and Louis unpack the facts behind the property market, explain what’s really going on & where the market is heading. They believe in challenging the status quo and want to get out there to educate absolutely anyone looking to enter the property market.