End of First Home Buyer Grant Unlikely to Prompt Rush

A 71 per cent clearance rate was recorded this weekend, and whilst outer suburban locations in Melbourne remain relatively stable, increases in inner and middle ring locations are noticeable.

Activity has improved throughout the year, and the competitive atmosphere which started in the first quarter of 2013 is continuing to produce clearance figures comfortably in the 70s, even after revisions.

Only a few days remain until the first home buyer grant for established property will cease, to be replaced with a 40 per cent cut in stamp duty.  The existing $7000 grant with a 30 per cent cut to stamp duty is preferable to buyers currently in the market, as for most purchases it provides a greater discount than a 40 per cent cut alone. 

However, it’s doubtful we’ll see a huge rush from new buyers. It may spur those already looking to make a speedy commitment, prompting a spike in turnover as we approach the end of the financial year.

As a proportion of the buying market, first home buyers are low in number.  The situation in Victoria is not quite as bad as it is New South Wales and Queensland, where first home buyers shamefully make up less than 5 per cent of the buying demographic. However, in Victoria, many are finding themselves crowded out by investor activity, the proportion of which now exceeds 40 per cent and is concentrated overwhelmingly in the established apartment sector.

As noted from a recent QBE LMI survey – and certainly shared by my own anecdotal evidence – first home buyers perceive prices to be ‘too high.’ Their budget is typically around $300,000, which will barely purchase a one bedroom inner city apartment in either Sydney or Melbourne, and is less than the average new house price on the fringe ($400,000).

They also recognise that they will need to hold their properties for a longer period of time to advantage from an increase in equity. In other words, it will take longer before an upgrade is possible.

In this respect, our environment has changed considerably. From an atmosphere where a job was for life and family units were formed early, to a set of differing cultural conditions with fairly fluid fluctuations between periods of ownership and tenancy, as buyers and renters migrate through various stages of their employment career.

As a result, it’s no surprise we’re seeing many considering staying in the family home for longer, and entering the market initially as investors, prior to becoming owner-occupiers.

RP Data released their Pain and Gain Report last week, which showed that more than three quarters of all properties re-sold in Australia over the first quarter of 2013 achieved a gross re-sale profit totalling $9.6 billion.

The data was taken from 58,677 residential property sales nationally, and the gross profit recorded, from the 87.3 per cent proportion was relative to the nominal purchase price (not accounting for inflation or seasonal fluctuations).

Significantly, sales recording a loss on purchase price had an average length of ownership of just 4.8 years. Those recording a profit were held for an average of 9.7 years, and homes that recorded a gross profit of more than 100 per cent were owned for an average of 15.4 years.

The lesson is abundantly clear, and never more so as we approach the headwinds facing us in the years to come.  We’re unlikely to match the capital returns achieved over the previous 10-20 years.  To create a profit from property requires a long-term mindset – preferably 15-20 years or more.

It’s becoming a challenge locating quality stock in the inner and middle ring suburbs. The change is in part seasonal as the colder months typically reduce vendor activity.  However, when good stock is well located – either off market or openly advertised – competition is high. 

The key to purchasing well in this atmosphere is all down to negotiation, and to do this effectively, you really need to be experienced in the local buying and selling process, knowing your rights within the law.

Therefore, the months ahead will provide an interesting landscape of challenges.