All the talk recently has been surrounding the Federal Government’s latest incentive for the real estate sector, known as HomeBuilder, which is a $25,000 grant to encourage homeowners to build and renovate.
The package has not been without its critics as the criteria to qualify is relatively restrictive. You need to firstly be earning less than $125,000 per year, or $200,000 as a couple. The grant can be used for new homes valued up to $750,000 including land, or renovations worth between $150,000 and $750,000 that will result in the property being priced at $1.5 million or less.
While the restrictions are obvious, the goal of the package is to help boost the construction industry and the Government predicts it will help support 140,000 jobs. The program is also demand-driven, but the government thinks about 27,500 people will take up the offer.
Since the onset of COVID, it was estimated that around 30 per cent of construction work has been put on hold, with many prospective home builders not committing and taking a wait and see approach. This package has really been designed to get the industry moving again, which is a positive step.
The fact that it is only short-term in nature in that it only runs until the end of the year, is also a bonus as it will hopefully protect against oversupply in some outer suburb areas, where building activity is likely to spike in the short-term.
What are the opportunities for those looking to build?
When combined with other Federal and State Government incentives segments of the market like first home buyers stand to benefit in a massive way. With nearly $70,000 of handouts available if you qualify on all counts in some states.
So for certain people, this could be a really great opportunity to get into an Australian property investment, where they simply couldn’t do so beforehand.
Much of the focus of the HomeBuilder package is on owner-occupiers. Would-be investors might now be able to take up the option of building and living in the new house, simply because it makes financial sense and gets them into the property market when that wasn’t a possibility only a few months ago.
The limitations in place on the overall value of the land and new property, being under $750,000 means that Sydney and Melbourne will be the obvious cities that might not see much benefit. As the high median prices in many suburbs would rule out most, with the exception of the outer areas and new housing estates.
However, when we look to places such as South East Queensland we can see that there is quite a bit of opportunity for astute investors.
Firstly, the price points are significantly lower in South East Queensland, meaning there will be more higher-quality areas that people will be able to find to build in, especially boutique oversized apartments that appeal to the owner-occupier market segment.
At the same time, many of the issues that Sydney and Melbourne face with restrictions around international immigration aren’t going to be as large in Queensland. The vast majority of Sydney’s population growth comes from overseas migration and with that falling to zero for the foreseeable future, there is a chance that price growth could slow for a period of time.
Brisbane gets about 18,000 new people per year from overseas migration, however, interstate migration numbers are similar and on an ongoing upward trajectory. So QLD stands to be impacted much less by these headwinds and that will be a real bonus for the state when combined with the current subsidies on offer.
We feel that there could be some robust opportunities for investors turned owner-occupiers who are looking to get into the property market in the coming months and seize these subsidies combined with some of the lowest interest rates in history.
The best areas to look to buy land and build new dwellings are going to be in the more established suburbs in the “inner middle ring” of our major capital cities, particularly in areas that meet the price criteria, such as Brisbane and the non-east coast capitals. These established suburbs already have the benefit of being serviced by good infrastructure, schooling and amenities and the availability of new land to build on is quite low.
That will mean that an oversupply of new quality property is not likely to happen in the short term, given the scope of the HomeBuilder program.
Overall, this has the potential to be a big boost, for both the broader economy and to those who are ready and eager to use these significant stimulus bonuses to build their way into a new property.