The lack of incentives for trade-up buyers in NSW budget could create a two-tier market

Over the last few weeks I have devoted several posts to a discussion about state-based property charges, including stamp duty and various buyer incentives and grants.

Last week’s NSW state budget was built around incentives to encourage big numbers of new home buyers into the market alongside more funds for urban development. In my memory this was the first time I have seen these policy areas so markedly dominate a state’s budget settings.

There is little doubt that the measures will be welcome by first-home buyers. The basket of benefits for these buyers will be substantial and could be as much as $35,240. The first-home owners’ grant for new homes up to $650,000 from October 1 will be $15,000 until January 2014, when it will fall back to $10,000. Stamp duty exemptions have for first-time buyers have more or less been retained.

In addition to these direct incentives, all aimed at giving a big boost to construction of new homes and apartments, a proposed $500 million-plus fund is being established to fast-track urban infrastructure. The aim is to release more land in Sydney’s south-west and north-west. And there are similar policies on the drawing board for Melbourne.

However the zero incentives for trade-up buyers may well create a two-tier market. After all, already established home owners also buy new homes, they can in fact be more cashed-up and possibly more capable of selling and buying a new home. They may move from a smaller inner-city flat, for example, and this would also directly encourage new construction activity.

The incentives are welcome, and as the market responds the incentives and rebates may even help major developers to obtain finance for new projects because there will be more potential buyers in the market.

However, given the raft of changes and the various hybrids of the same ideas now available across Australia, the need for fundamental change to the current stamp duty regime remains an issue that has once again been postponed.