What Does the HomeBuilder Grant Mean for the Australian Property Market?
The federal government has now released details of its building and renovation stimulus package in response to the economic slowdown that has occurred due to the COVID-19 pandemic.
Eligible owner-occupiers (including first time buyers) can apply a grant of $25,000 either to build a new home or to make significant renovations to an existing property.
To qualify for the grant, contracts need to be entered into before the end of 2020, and work must begin within three months of the date of the contract.
The will be means tested, with individuals who earn up to $125,000 or couples who have a combined income of up to $200,000 eligible to apply. Access to the scheme will not be limited to first home buyers, but owner-builders are not eligible, nor can the grant be used to purchase or renovate an investment property.
The value of new builds will be capped at $700,000 (house and land combined), while renovations to an exisiting property need to be valued at between $150,000 and $750,000 in order to qualify for the grant. Any property being renovated will need to be valued at under $1.5 million before any renovations, with all work carried out under the supervision of a licensed builder.
There will, however, be conditions applied to any renovation work that is undertaken using the grant, namely that it improves the “accessibility, safety and liveability” of the property. Different parts of a home can be included, e.g., a bathroom and kitchen, but the grant can’t be used for home additions that are not connected to the main property (such as a granny flat or garage), nor for swimming pools or tennis courts.
States and territories will implement the scheme and be responsible for ensuring compliance, with grants being paid directly to applicants when they make their first progress payment.
What is the need for HomeBuilder?
The HomeBuilder scheme has been launched on the back of news that Australia is officially in a recession and a severe contraction being experienced by the building industry nationwide. Industry experts predict that the number of new dwellings being started will have fallen to around half of its pre-pandemic rate by the end of 2020.
The construction industry has welcomed the news, with the Property Council Australia, Real Estate Institute of Australia, Master Builders Australia and the Housing Industry Association all reacting positively to the announcement. The HIA estimates that $15 billion in economic activity could be generated by the scheme, while the overall cost of the program is expected to be in the region of $688 million.
It is unclear at this stage as to what effect the scheme will have on the current demand for housing, or how it will impact on prices in both the short and long term.
For instance, one criticism of the scheme is that is essentially aimed at people who were already intending to build a new home or renovate their existing one and so will largely help people who can already afford to build or renovate, rather than making it easier for those for whom this is out of reach. Therefore, some industry observers take the view that significant growth in the nation’s overall housing stock is unlikely to result, particularly in the areas of our capital cities where demand is at its highest.
Similarly, there is concern that the scheme will lead to sharp and sudden increases in the prices tradies and builders charge for renovation work, although the government’s response to this is that it expects widespread competition in the industry to keep prices in check.
How can I build the equity in my home?
If you want to build the equity in your home as part of your property investment strategies, there are some steps that you can take that will help speed up the process.
For instance, property advisers will suggest that you make additional mortgage repayments whenever you can, or increase the size of your regular monthly payments. It might also be helpful to change loan providers in order to benefit from lower repayments, while at the same time maintaining your existing repayment levels, so that you are paying down your loan and growing equity more quickly.
Another way in which you can effectively grow the equity value in your home is through connecting your mortgage account to an offset bank account. This effectively reduces the amount of interest you pay on your mortgage, and therefore means you are paying down the principle more quickly.
What impact will HomeBuilder have on property investors?
HomeBuilder is at this stage unlikely to benefit , who are explicitly excluded from the scheme, with the grant unable to be used to build a new investment property nor to renovate an exisiting one.
The only way in which an investor might be able to benefit from the program is by taking advantage of the grant through building a new home into which they move, with their existing property then being put on the rental market as a source of ongoing income.
However, this is predicated on an investor already having sufficient funds available to build a new property, and so it’s unlikely to provide an incentive for those looking to invest in property for the first time, or for those looking to invest in new, high growth areas of the country with the potential for significant capital growth over time.
At the same time, the conditions and value of the grant mean that there is unlikely to be an excess of new properties being constructed as a result of the scheme in the most popular markets for investors, and so the impact on prices in these areas may be minimal.
How have house prices been affected by COVID-19?
The latest CoreLogic Home Value Index results for May have shown a over the course of the month, the first drop since June 2019. However, at the same time there have more positive signs in terms of transaction activity, with May’s sales activity up by an estimated 18.5%.
Average house prices fell in Melbourne by 0.9%, as well as in Perth (-0.6%), Sydney (-0.4%) and Brisbane (-0.1%), although there were countered by a 0.4% rise in Adelaide, and 0.8% and 0.5% increases in Hobart and Canberra respectively.
The national rental index rose by 0.2% in May, despite the fact that every capital city except Perth recorded a fall in rents for both houses and units, although there was growth in regional areas in most states and territories, except NT and Tasmania.
The combined capital gross rental yield index currently stands at 3.3% for houses and 3.9% for units, and at 3.6% and 4.1% nationally when regions are factored in.
Speak to our team of expert property advisers
If you want to find out more about how the HomeBuilder grant will impact on property investment in Australia, or the , speak to team of property specialists at High Income Property.
You can get in touch with us via email at firstname.lastname@example.org or call us on (02) 8007 4001 and we will be only too happy to arrange a meeting to discuss your needs and show you how to take the fist steps towards building a property portfolio.