FHOG changes could force Ballarat FHBs into outer suburbs: Trevor Booth

The withdrawal of the $7,000 first-home owner grant (FHOG) in Victoria from July 1 could force first-home buyers in Ballarat and other regional towns to consider buying a new house on the outskirts to access greater government assistance.

But it is also likely to change the dynamics of the market, including a rush among some FHBS to finalise purchases before July 1 and then a drop off as others delay existing house purchases for up to a year to save deposit money to make up the shortfall, according to Trevor Booth, chairperson of the Real Estate Institute of Victoria’s (REIV) Ballarat Division.

Booth also expects investors may look to buy some of the established properties that vendors would have been targeting at first-home buyers, enticed also by Ballarat's low vacancy rate of under 1%.

Ballarat (postcode 3350) was the seventh top location for Victorian FHBs applying for the $7,000 FHOG with 298 applications received between July 2012 and March 2013.

More than half of these – 165 applications - were for existing home purchases with the rest for new homes.

The introduction of the  new $10,000 FHOG for new homes  from July 1 will come alongside the raising of stamp duty concession for FHBs from 30% to 40%.

As highlighted by the REIV’s Robert Larocca on Property Observer earlier this week, the removal of the $7,000 FHOG and the introduction of the higher stamp duty concession will mean that FHBs of more expensive existing properties will be less affected by the removal of the $7,000 grant than those buying cheaper homes.

A FHB of a $300,000 existing home from July 1 will lose out on almost $6,000 in government incentives while a FHB purchasing a $550,000 will lose just over $4,000.

Click to enlarge

Source: SRO, REIV

This will particularly hurt FHBs in Ballarat where the median house price is $280,000, but will also impact on many FHBs in other key regional housing market like Bendigo, where the median house price is $315,000.

Currently, buying an existing or new home around the median price means benefits of around $10,100 ($7,000 FHOG plus the 30% stamp duty rebate).

“The changes to the grant will disadvantage FHBs wishing to purchase established home after July 1. It will discriminate against them,” says Booth.

“It may force FHBs to consider buying a new home to take advantage of fair bit of extra money which will increase demand for new housing and help the local construction sector, but it will put FHBs in the situation where they sacrifice the benefits of being close to amenities, to secure an extra $6,000.

Booth says the new housing suburbs are on the north and western outskirts of the city.

Booth says these new housing developments – being built by local companies – are around 10 kilometres from the Ballarat CBD.

With the traffic in Ballarat getting worse, first-home buyers who sacrifice convenience for government assistance, could end up paying more in petrol.

The uncertainty created by the changes to the grant and the lag time until they come into play comes at a time when, according to Booth, the Ballarat market is starting to show signs of improvement.

Booth says the worrying aspect of the grant changes are they impact they may have on the established home market.

Overall though, he says the Ballarat economy is “sound” with population growth of 2% to 2.5% per annum driven by strong IT, healthcare and university sectors.

Image courtesy of Travel Victoria.