Why ‘purchasing properties for very little’ could still have a slow uptake

By Cameron Micallef 12 October 2020 | 1 minute read

While the budget has been flagged as a win for first home buyers, a property researcher explains why the uptick in first home buyers might actually be slower than first anticipated.

Josh Frydenberg

An extra 10,000 first home buyers will be able to purchase with deposits as low as 5 per cent under an extension to the federal government’s First Home Loan Deposit Scheme.

But unlike the original, the extension only applies to newly built homes that will come at a higher price compared with those who benefited from the scheme a year ago. 

This is designed to help the construction sector as the government looks to stimulate the economy post COVID-19 restrictions.

In his budget address on 6 October, Treasurer Josh Frydenberg announced that he is tweaking the scheme, with eligible first home buyers now able to use it for homes purchased between 6 October to 30 June 2021.

As with the original phase of the scheme, eligible first home buyers will be able to purchase a home with a deposit as low as 5 per cent of the purchase price, as the federal government will guarantee up to 15 per cent of the loan.

But this time around, successful applicants will be able to buy newly built homes worth up to $950,000 in Sydney; $850,000 in Melbourne; $650,000 in Brisbane, and $550,000 in PerthPerth, TAS Perth, WA.

Due to the higher costs associated with new builds, InvestorKit’s head of research Arjun Paliwal believes the new scheme could be slower to pick up than the original.

“I believe first home buyers are the winners [from the budget], but it’s important to note it has been limited to newer builds, which makes sense for the construction industry that needs support,” Mr Paliwal said.

“But it will be interesting to see the take-up of this versus the speed of take-up of the last few 10,000 placements.”

While pointing to distance to where a new building has to be built from the CBD as well as an additional cost, Mr Paliwal believes this could be an opportunity for first home buyers.

“Surrounding the scheme are all these grants that are putting investors in a position where they could be paying very little,” Mr Paliwal said.

“In this circumstance, it may enable someone to purchase a property with close to no money now.

“If you think about a $650,000 new build in, say, the Central Coast as an example, a 5 per cent deposit is $32,500.

“If they are getting a $10,000 new build grant, it’s $22,500. But then they also don’t pay stamp duty as a first home buyer.”

“So, 22,500 for many people that have been saving for years would be in a position to make this transaction from a cash perspective happen.

“So, I think it does help a lot of people when you combine all the schemes, but it will limit them to locations unfortunately,” Mr Paliwal concluded.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your... Read more

Why ‘purchasing properties for very little’ could still have a slow uptake
Why ‘purchasing properties for very little’ could still have a slow uptake
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