2 May, 2017 / Category: News
The Victorian Government has recently announced substantial changes to the First Home Buyer’s Grant. With these likely to come into effect from July 1, Infolio senior buyers advocate Shane Banfield explores how proposed changes will alter the outlook for prospective first home buyers.
The Victorian Government’s proposal is to abolish stamp duty for first home buyers who purchase a property with a value of less than $600,000 while those purchasing property valued between $600,001 and $750,000 will be entitled to a concessional rate of stamp duty. These savings are significant and designed to help first home buyers to enter the market. Previously, first home buyers have found it increasingly difficult, hindered by rising prices and the up-front costs demanded by stamp duty taxes currently required to secure a home.
How will this impact the real estate market for non-first home buyers? It’s worth highlighting that this segment of the market accounts for a big chunk of Victorian buyers, with Melbourne’s median house price currently at $770,000 and its median unit price at $563,500. The decision by the Andrews Government to introduce a sliding scale concessionary system does seem sensible, as the existing scheme has created two distinct markets; one below $600,000 and one above $600,000. This divide has created a vacuum that property investors have exploited, leaving homeowners with property values in the $600,000-plus category at the mercy of a diluted market missing its key driver: first home buyers. Without the upwards market pressure presented by the first home buyer community, investors in the $600,000-plus category are enjoying additional negotiating leverage, simply choosing to walk away from vendors who refuse to ‘meet the market’ on price.
Resultingly, Infolio have seen irregular sales results across Melbourne such as $599,999 and $600,001 – driven by buyers from each side of the two-speed property market divide. There is an argument to consider – that the added value which has arisen from reduced competition in the $600,000-$700,000 price range actually offsets the Victorian Government incentive.
A perfect example of this ‘two-speed’ property market was a recent sale in Kensington. Prominent northern-suburbs agents Nelson Alexander sold the home on behalf of an Infolio client. We had two bidders at this Kensington property’s auction; one an investor, the other a first home buyer. The agent’s estimate of value was $580,000-$630,000. Bidding started in the high $500,000′s and – as is the case with many auctions – the first home buyer placed a bid of $599,000 in an attempt to secure his stamp duty concession and the property. As expected, the smart investor came in with an additional $1,000 bid, assuming this would secure her the property – she was wrong! The first home buyer ploughed on with their bidding and bought the property effectively forfeiting $15,535 and leaving the opportunistic investor surprised and ultimately defeated.
Nobody can deny that housing affordability is an issue, and many first home buyers will benefit from the abolition of stamp duty. In this instance, however, the first home buyer had a method to his perceived madness. Yes, he sacrificed $15,535 – but what did he gain in a market totally devoid of first home buyer competition? Did he buy the property he wanted for less? Would this property have sold for more after July 1st this year?
These are all valid questions to ask of the market, with no clear answers immediately apparent. The market is already alive with opinion and theories around the current ‘two speed’ property market and how the proposed changes will influence buyer behaviour and property prices.
But one thing is for sure, for every action there is a reaction. Infolio’s advocates are watching with interest.