First home buyers grant and bonus retained; 50 per cent land transfer duty cut

Prospective purchasers hoping to benefit from the first home buyers grant and bonus before the scheme's scheduled finish date on June 30 can put off the big decision, with the coalition government announcing in May that it will retain the existing first home buyers grant and bonuses for new homes in the new financial year.

The announcement will be welcome news to vendors and property developers alike, who stand to gain from the incentives for purchasers to buy new properties, which receive a bonus of $13,000 in metropolitan Melbourne in addition to the $7,000 grant.

The government has also announced an additional scheme to run concurrently with the grant and bonus, which will initially cut stamp duty by 20% for first home owners from 1 July 2011, and progressively move towards a permanent 50% cut by September 2014.

However, the provision of assistance to first home buyers through stamp duty cuts remains a controversial issue, with commentators noting that the scheme has been shown to inflate house prices, especially in the range of prices accessible to first home buyers. If that is correct, the stamp duty concessions will have little effect on improving housing affordability, a stated objective of the government policy.

An additional concern is that the more assistance directed to buyers, the more they are able to spend. When taking into the account the effect of leverage, the saving of $13,000 gives a purchaser an additional $52,000 to spend on their new home (based on a loan-to-value ratio of 80%).

Regardless, the outlook appears favourable for property developers, who will be hopeful that the schemes will create an incentive for purchasers to buy new homes. This will boost the construction industry and increase the housing supply at a level that may well minimise any inflationary effects of the grant on prices.

Authored by Tanya Nguyen, Cornwall Stodart