Ask Margaret: Does the first-home owners grant make it worth the risk to buy off-the-plan?
I have read your response to the question raised on should you buy off the plan or existing dwelling for investment.
After reading this I had some questions of my own. My current situation is that I'm 23 and looking at buying my first investment, obviously to also take advantage of the first-home owners grant (FHOG) & stamp duty exemptions as well. My strategy was live in the apartment for 6 months and then rent it out.
I have done quite a bit of reading about buying an investment property, the risks of negative gearing, buying property off the plan and all the other jazz. I've also done some speculative/assumption modeling for buying off the plan and investing but I don't want to be disillusioned by my own thinking.
Since I was wanting to take advantage of FHOGs I’m limiting myself to new and off the plan apartments, so from a risk perspective I tried to lower the risk by investing in a blue chip/boutique suburb such as Lane Cove North (there’s about 5 other developments in the area too).
A lot of the developers already include commissions/the gov grant included in their pricing matrix so buying off the plan I will already be overpaying for a property in Sydney.
Say my investment strategy is for the long term and I’m willing to hold on the apartment, would it still be worth it to invest in off the plan (taking advantage of the $15,000 and all stamp duty exemption)?
Regards
David
David,
Before I answer the question, let’s get a few things straight.
The FHOG is a sum of money available to homebuyers who wish to acquire an owner occupied property.
It is not for those who wish to buy an investment property, and who are planning to live in it only for the minimum 6 months to keep the grant. The 6 month minimum (which must occur within 12 months of settlement) is provided for those who genuinely access the grant, intending for the property to become an owner occupied one, and then have changed circumstances which require them to move out.
If your aim is to use the grant to buy an investment property, you will run the risk of having that grant revoked in the future, should there be any evidence that you never intended for the property to become your own home.
If you buy an investment property without accessing the grant, this grant remains available to you for your first home purchase, as long as you never live in any properties you buy before that time. So, not using it will not result in you losing it if you buy a property purely for investment.
You talk about ‘blue chip’ suburbs, but this term has little meaning any more.
Originally used to describe shares of long standing, well- established companies, this term was then applied to those long held, established areas where it was believed that growth would always be better and bigger.
Much has changed about how property performs and this is largely attributed to the urban sprawl, and the capacity of larger regional areas to meet the lifestyle and employment needs of a more diverse range of people.
In other words, some areas which used to be considered ‘country towns’ are now thriving metropolises in their own right.
If you use old time thinking to invest today, you may well make a very large mistake. In the past 20 years we have seen some lacklustre performances indeed from what has always been referred to as blue chip suburbs, and I’d say this is because their values, having already hit fairly high levels, have little room to move when you consider the average buying power of the majority of the population.
And so; if your aim is to buy an investment, then you will see a far better short term yield and likely a better long term return in terms of growth, if you can find those areas which have not had large gains yet, but which have an abundance of growth drivers.
You don’t have to take the risk involved in buying off-the-plan, where you cannot confirm true market value and where often those commissions are built in to make them overpriced. You should be casting your net more widely and looking for areas where population is growing faster than the national average, diversified employment opportunities exist and property is still affordable to the greater portion of the buyers.
Property such as this is more exposed to the demand factors which push up prices and result in better growth for you, and these same properties generally have a better rental yield in relation to purchase price, making it easier to hang on to as the cost to you is minimised.
Most importantly David, do nothing until you become educated. Attend a good course (like Destiny’s Essential Property Education) and take no action until you are better trained. It makes no sense to make such a large investment if you haven’t got the knowledge and skills to get it right.
Margaret Lomas is a best-selling author and writes and hosts the popular Property Success With Margaret Lomas and heads up the panel onYour Money, Your Call, both on Sky News. She is the founder of Destiny.
