Paying Over & Above…
Recently we have had some changes to the First Home Owners Grant in both QLD and NSW. The changes were to take away the $7,000 grant and replace it with a New Home Owners Boost of $15,000.
The governments thought process here was to attract first homeowners into the market place with a bigger grant with the condition that the property had to be new. Therefore we would be creating new dwellings to accommodate our growing population. The theory makes sense except for the fact to have new dwellings you require land to build on… and in Sydney more so, there is barely any land in Sydney except out west. But that’s not what this Blog is all about.
The new properties also have the benefit of helping our struggling building industry… but it seems like this industry is set on shooting themselves in the foot, yet again… Opportunity breeds sharks and it seems it has done so again here…
As you know I invest in the First Home Buyers price range… the reason being that it is the price range 1st, 2nd home buyers along with investors buy in, so this way we have the largest audience of buyers that can purchase my property when I look to sell… and I always invest with an exit strategy in mind.
So because I keep my eye on the ball in my target buying locations and some other key locations I am closely watching, I have noticed some poor trading practices that should be brought to light.
Prior to the new “Scheme”… (it’s always a scheme), the price of a new house and land package could be purchased for a little under $300,000. This was achievable in all three locations that I am purchasing in currently. Yes this sounds cheap but when you walk through a new stock standard house and land package these days, you can see why… watered down paint, one power point in master bedroom, no TV aerials, no landscaping, down pipes that do not flow into underground piping etc etc etc…
And have you ever wondered why these packages are now price pointed to the exact dollar eg $298,356… seems like a strange number. This is because they are priced out for every single piece of product put into the house… right down the last dollar!
Now wasn’t it amazing to see the price tags rollover to a new price point the immediate week after the new scheme came into play… those same packages can now be purchased for around the $340,000 mark. Sorry I meant $339,412…
It would appear that they are taking advantage of the new grant and now trying to make more profit per property to make up for the slow times during the GFC that they have just experienced. They know that if a first home owner wants to get into the market and take advantage of the new grant, then they must buy new and now at the new prices…
And they haven’t just increased the purchase price by the $15,000 grant, it would appear that they too do demographic homework and know average incomes for a suburb because when you use this information and put into a mortgage calculator, it just so happens that their incomes can service a debt a little over the $339,412 mark.
Why just a little over???
Because building companies make their real profit in the up selling of extra features on a house. Now as First Home Owners are generally borrowing 95% of the purchase price, this up selling comes easy for the salesman as the purchasers are borrowing $950 out of every $1,000 they spend on extras on their home. $20,000 in extra features only equates to an extra deposit of $1,000… very achievable. And only a few extra dollars per week on a loan repayment.
Now its not all bad news, due to this type of behavior, the median house price tends to increase in the area when purchasers buy nearly complete properties. The increase has a flow on effect to all properties in the region. And it’s these houses that I invest in…
Having just come back from Malaysia, they are offering a different type of “scheme” to allow for affordable housing. Instead of giving the incentives to the purchaser, they are offering the developers the incentives whereas they build their developments and receive a reduction on their payable tax to make the properties much more affordable. With the little research I have done on this, it would appear to be an attractive scheme. The approved developer knows they will receive a tax savings after settlement of the property, so they can then offer the properties for sale at a cheaper price so as to beat the competition. Now that makes sense to me…
Lastly, if we have any First Home Owners reading this Blog (probably not)… my advice is thoroughly do your homework before proceeding. This can be done by talking to many real estate agents on sale prices on similar looking houses. Research land values in the area and make sure you are not paying overs on the price. I tend to find land re-sales offer better value as you can haggle… and because this is your first time purchasing a property, don’t be afraid to ask for help when it comes to negotiating. I did when I purchased my first home… I was on the phone back and forth with the real estate agent and my girlfriend’s father… he was a great help, and I secured the purchase far cheaper than I would have normally, had I gone it alone.