New Data on First Time Home Buyers Choosing Construction over Existing Properties May Be Slowing Down Market, Says REIWA

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New data from the Office of State Revenue reveals that the number of First Home Owner Grants given to construction has exceeded the number of grants for existing homes. REIWA points out that this development may be contributing to the slow pace of the housing market.

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Normally, around 70 percent of first home buyers choose an older, established home over a brand new one, but the State Government’s tinkering with the grant has shifted the equation.

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The Office of the State Revenue (OSR) has just released new data revealing more first time home buyers choosing to build rather than to buy established homes (http://www.news.com.au/finance/real-estate/negative-market-impact-of-perths-home-and-land-packages/story-fndbaln9-1227281691846). Real Estate Institute of Western Australia President, David Airey, says that while this indicates healthy first time home buyer activity, the tipping of the scale in favour of construction may be adding to the slow crawl of the housing market in the overall scheme of things.

In February of this year, the First Home Owners Grant for new builds came to 747 while grants paid out to new stock came to just 696. This is the first time it has happened in the last five years, first time home buyers choosing construction with house and land packages instead of simply purchasing existing homes.

Airey explains that this development may have been boosted by the Barnett government’s move to increase grants for new builds.

“Two years ago,” Airey begins, “the Barnett Government dropped the FHOG grant for established homes from $7,000 to $3,000 and increased it for new-builds to $10,000.”

The REIWA head further remarks, “Normally, around 70 percent of first home buyers choose an older, established home over a brand new one, but the State Government’s tinkering with the grant has shifted the equation.”

This shift in the equation comes down to two scenarios: One, it creates a smaller pool of buyers for sellers of existing homes, and two, it can increase properties on the market. This entire situation, Airey points out, will create a slower pace in the housing market, as sellers wait for first time home buyers to give established homes a go over building new ones.

In a bid to improve the housing market, particularly next year, Airey shares that they have proposed a Five Point Plan to the State Government in its pre-budget submission.

Airey says, “The falling population growth rate and increasing number of properties on the market means that the year ahead is likely to be weaker for sales and the Government needs to prepare for that. Fewer sales means less stamp duty revenue to government coffers, but that’s no reason to increase stamp duty rates on prospective buyers to make up the shortfall.”

Part of REIWA’s recommendation on its pre-budget submission encourages the government to readjust the First Home Owner’s Grant to apply equally to new builds and established homes.

Aside from information revealing that more first home buyers are choosing to build, OSR’s data also show that the median purchase price for first home buyers in the metropolitan area has jumped to $450,000, with a $5,000 increase from the beginning of this year, while prices in the regions went up to $360,000, which is $10,000 more compared to January prices.

REIWA hopes that the State Government reviews its First Home Owner’s Grant policy so that next year’s housing market may improve. By encouraging first time home buyers to return to the established market, Airey shares that the trade-up activity across the whole market might not be impacted too greatly.

For more real estate updates, industry insights, and buyer and seller tips, explore REIWA’s official website today.

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