Wednesday, December 9, 2009

Has the first home buyers grant really been beneficial to buyers?

It's no secret that the rite of passage of owning your first home in Sydney has become a near impossibility. A few years ago, the government created the first home buyers grant as an effort to encourage young buyers into the market. Initially, the feedback was positive but the results were not as progressive as the government had hoped. Last year, the government added an additional incentive - another $7000 to increase more first home buyers to the market. There have been a couple of positives and negatives with this move.

In 2008, the real estate market was at a lull. It was a period where stock was not only low, but so was selling. The causes of this have been attributed to the GFC and a general consensus that properties were over-valued in the Sydney market. There were complaints from renters too - rental vacancy rates were as low as 1% in many areas and the cost of renting increased by an estimated 20% in just 2 years. It was not only expensive to buy, but for many it was also becoming too expensive to rent. I remember as a leasing officer, one open house I held in Annandale - we had nearly 81 people through in a half an hour period and a line out the front door that went to the end of the street. Crazy times! The government's initiative to boost the first home buyers grant gave many buyers the opportunity to buy their first home. This was a good thing, rental rates eased, rental prices plateaued and coinciding with the record low interest rates, properties were beginning to sell again.

In 2009, the $14,000 grant and the record low interest rates made it one of the best times to buy in 40 years and the market quickly started to flood with buyers. However market stock did not grow very much in 2009. It took a while for vendors to let go of their assets in the wake of the GFC. So what began to happen was that the low stock, and high influx of buyers, fuelled by the first home buyers grant, resulted in housing prices starting to increase. It was the quickest market turn around that I had ever seen. It started as the best time to buy in nearly 40 years to suddenly switching and becoming one of the best times to sell in 40 years! Competition grew and many buyers were looking for a bargain gem, but so were a hundred other buyers in the same price range. Properties were going on the market with little or no competition and, because cut-off dates had been set for the grants to end in September and December, it enticed a flurry of furious bidding at auction pushing the housing prices up.

I can see many of you rolling your eyes with you're own experiences at auctions like these. You've paid for a building and pest inspection, you've worked out the finances and you turn up on the day ready to bid only to have someone else open the bidding at a ludicrously high price. At the end of the auction the property has sold for $70,000 more than what you were willing to pay for it.
I have heard may stories like this in the past year. I had one buyer say to me: "What is the point of having a $14,000 government grant when you buy the house for $70,000 more than it's value?" The answer: None.
The high house prices have knocked many buyers back to square 1 - unable to afford a house.

So what will happen in 2010?
Well the commonwealth bonus ceases on December 31st, and the $7000 Grant will remain until June 2010. This will take quite a bit of wind out of the sails in the buyers market. There has been talk that investors would fill that gap, but it looks like many investors have seen the high prices in the market and have stayed away, waiting for cheaper times. The interest rates will continue to climb, restricting peoples ability to finance their purchases and we are now seeing more stock coming onto the market. With all of these factors coming to a head in the first half of 2010, one can estimate that a probable scenario is a slowing of the market. The bubble may well just burst in a few months and we could start to see housing prices plateau in Sydney. Will they go down? If they fall, they won't fall by much, but there is a good chance that we are going to soon see an end to record sales prices in many areas.

So what should you do?
Stay informed and keep your eyes open. There are many other commentators out there who would disagree with my prediction, and they could be right, if I had a crystal ball I'd be out buying a lotto ticket right now! But the signs are pointing to a climax when the market will begin to turn and I believe it will be in 2010.
But back to the inital question: Has the First Home Buyers Grant really been beneficial to buyers? There can be no doubt that it did help those buyers who moved quickly to secure a property before the crowds and while prices were low. But for those who entered the market later, they found that the grant had too broad an appeal and buyers were wasting their money on building and pest inspections, loosing at auctions and leaving with nothing. It became a frustrating and upsetting process with little reward.

I welcome any comments or opinions on this article, including those of my professional peers.

No comments:

Post a Comment