Just how much of a difference will the reduction in the First Home Owners Grant this month make to property prices? Will buyers scurry away leaving sellers in the lurch or will investors come riding in on their chariot to save the day?
The view is that not only will investors return to the market but potential first home buyers will also hang around. Matthew Bell, economist at Australian Property Monitors says that property is still very affordable compared to this time last year with or without the first home owners boost. From September 30 the grant is being reduced by $3500 to $10,500 and then by a further $3500 at the end of December.*
Bonus impact limited
Admittedly the grant at $14,000 can make a big difference to what you can afford to buy but in some markets it has less of an impact than others. In capital cities like Melbourne or Sydney the extra $3500 is not going to make a huge difference compared with somewhere like Hobart.
According to figures supplied by APM, the median price for a house in Hobart is just $296,000 while the median price for houses in Sydney is $544,000. So a cut of $3500 in the first home owners grant is really just a drop in the ocean for Sydney buyers – less than 1 per cent (0.64 per cent) of the purchase price. But to the Hobart buyer it is going to make more of a difference although it is still only 1.18 per cent. Of course when you are buying a property every cent counts, but it’s not going to make an enormous difference.
Investors move in
As a result it seems likely that there will still be first home buyers out in the marketplace but now they will be supported by investors.
“I think there will be a fall in demand from first home buyers after September 30 and then December 31 as the boost phases out, but it’s likely that investors will fill the gap to a large extent,” says Bell. “Back in March and April many investors believed that once the boost expired, prices would fall heavily and they were waiting for that to happen to enter the market.
“I don’t think there is now a serious expectation that prices will fall heavily although investors will certainly be looking for a period of slowing demand from first home buyers to enter the market at good prices, or at least a period where growth is slowing.”
While investors have been hanging back, they should be returning now as rental yields are at historically high levels for both houses and units in most markets around the country.
“Although there was practically no rental growth in the first six months of 2009, there’s plenty of evidence that suggests rents will begin to rise again very soon,” says Bell. “Vacancy rates are still at very low levels which reflect the continuing undersupply of housing for renters. If we add strong population growth to the mix, it points to a strong outlook for weekly rents and continued strong gross rental yields.”
Drop in housing finance
There is some evidence that there has been a drop off in demand for housing finance but this is not necessarily being reflected in property prices. According to figures from the Australian Bureau of Statistics, the number of home loan approvals for owner-occupied housing fell by 2 per cent in July.
So the flurry of demand from first home buyers earlier in the year may have cooled off but there are still investors ready and willing to take up the slack. It may not be quite the sellers market it was, there is still plenty of action at this end of the market.
- First home owners grant reduced by $3500 from October 1 and a further $3500 from January 1
- Investors set to take up the slack in demand
- Historically high rental yields and set to rise further