Victoria to miss out on first-home buyer pick-up and churn factor: BIS Shrapnel

First-home buyer demand should continue to pick up in 2012, particularly in NSW and Western Australia, but there will be no recovery in Victoria, according to the latest forecasts from BIS Shrapnel.

“We started to see a pick-up in NSW And Western Australia towards the end of last year, which was emphasised by the expiration of stamp duty exemptions for existing properties,” BIS Shrapnel senior manager Angie Zigomanis said at the March 2012 Building Industry Prospects conference yesterday.

“But it is still weak in Victoria, and one of the reasons why it is still weak is because the state government has tended to keep the first-home buyer incentives fairly elevated, which has pushed forward demand.

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“First-home buyer demand is very important because it creates demand at the bottom of the market for the next group of buyers to trade up.

“It’s that turnover and activity that flows to price growth and also brings more investors into the market.”

Zigomanis says this churning of property created by first-home buyers entering the market won’t be felt as strongly in Victoria.

“In Victoria the weakness in first-home buyer demand is permeating through to the rest of the market,” he said.

According to Zigomanis there are only a “finite number of first-home buyers out there”, and all the incentives do is encourage these buyers to purchase sooner.

“We had the federal government incentives when the GFC hit and then followed by the state government incentives,” he says.

As a consequence of demand being pulled forward, subsequent demand will fall off much more strongly, Zigomanis says, meaning that there will be no recovery in first-home buyer numbers Victoria until the end of 2012 or the start of 2013.

Victoria’s first home bonus and regional bonus, which awarded grants of $13,000 and $6,500 respectively to qualifying first-home buyers, are both set to expire at the end of 2011-12.

However BIS Shrapnel warns “the Victorian government has shown a tendency in the past to extend such grants, and hence it is quite possible they will do so again”.

Looking at the overall state of residential markets, Melbourne remains one of the weak spots, with vacancies heading up towards the 3% mark, which indicates a balanced market.

BIS Shrapnel estimates put the Victorian deficiency at approximately 23,100 dwellings as at June 2011, with newly completed dwellings coming onto the market over 2011-12 and 2012-13 likely to cause this number to fall. 

“In fact in some areas of inner Melbourne we feel that the market may even be in slight oversupply. This means there is significantly less pressure in the Victorian property market than is evident in New South Wales,” says BIS Shrapnel. 

“The residential vacancy rate in Melbourne has gradually risen over 2011 to reach 2.4% as at September 2011. As a result, our expectations for growth in property prices as well as rents are much more subdued in Melbourne than it is in the tighter market of Sydney. This in turn will ultimately limit demand from the investor segment of the market.”

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On the other hand vacancies in Brisbane, Perth and Sydney have tightened.

“Rental growth is coming up in Brisbane, but it has been pretty flat in Melbourne,” says Zigomanis.

During his presentation, BIS Shrapnel director Robert Mellor said the bump up in first-home buyer numbers in 2011 “was not all the result of the demand being brought forward in NSW”.

“People are responding to lower interest rates and an easing back in prices. Now may be a good time to buy relative to staying in the rental market,” he said.

“Housing interest rates are not the issue, affordability is not the issue – the real issue is confidence.

“What is going to tip it? After 30 years of forecasting I cannot answer that,” he said.