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‘Use grants wisely’: property investment consultancy advises first-home buyers

New building stimulus measures introduced by the Federal and WA State Governments are driving a significant rise in first-home buyer inquiry, according to reports from Perth-based property investment consultancy, Momentum Wealth.

Combined with the existing First Home Owner Grant and duty concessions, the Federal HomeBuilder Scheme and State Building Bonus Package could see eligible first-home buyers in WA receive between $44,000 and almost $70,000 in stimulus if they sign a contract to build or purchase a new property under construction before 31 December, 2020.

Chair of Momentum Wealth’s Residential Investment Committee, Emma Everett, said it was a great opportunity for first-home buyers to enter the market, but warned buyers not to overlook the risks and cost of building or buying in the wrong area.

“The stimulus provides a great opportunity for buyers to get into their first home sooner than planned, but these new building grants are also somewhat geared towards house and land packages in outer suburban housing estates, many of which are already facing oversupply,” Ms Everett said.

“One of the key risks for buyers who purchase in these outer areas is that they will not just be competing with the existing supply already on market, but also new stock that comes on stream from future developments, which could not only hold back their property’s long-term capital growth potential, but also accelerate price declines in a future downturn.”

Buyers urged to consider options

Ms Everett said buyers looking to leverage the stimulus measures should consider the different options available.

“This isn’t to say don’t build or buy a new property, but buyers need to be careful about where they do it, keeping in mind the implications on their property’s future value as well as their own lifestyle requirements,” she explained.

“Rather than buying in outer areas with lots of oncoming supply, buyers could look at purchasing an infill lot in an established suburb closer to the city, or a townhouse or villa under construction in a more tightly held area where there’s less competing stock, better amenity and a higher land value advantage to drive the property’s growth over time,” she said.

With some builders understandably increasing their prices to compensate for the influx in buyer demand, Ms Everett said buyers also need to ensure they aren’t overpaying.

“At the end of the day, if you’re paying $20,000 too much to purchase a lot or house and land package that won’t pay you back in its end value. That’s going to defeat the object of qualifying for the grant in the first place.

“Equally, you don’t want to be purchasing a poorly-located block of land just to receive the full $70,000 in grants if that property is going to decline in value and reduce your long-term returns, where purchasing a villa or townhouse would benefit you more in the longer-term due to stronger capital growth,” she said.

Not all lenders considering grants in loan assessments

Team Leader of Momentum Wealth’s finance division, Caylum Merrick, said buyers also need to factor in how banks are using the grants in their loan assessments.

“Some lenders have already said they won’t consider the grants as part of the purchase funds. So while buyers in this instance would still benefit from the additional funds after the purchase, this is obviously going to have a potential impact on some borrowers’ ability to quality for a loan in the first place,” he said.

Mr Merrick said buyers need to research their options prior to committing to a purchase.

“Rather than committing to a block of land to find they won’t qualify for finance with their lender in time to receive the stimulus, buyers should speak to a broker who can compare different products and lender policies to help them identify the right finance solution for their situation,” he said.

Mr Merrick said getting the right advice will be crucial for buyers looking to make the most of the stimulus.

“Perth is already experiencing the most affordable conditions we’ve seen in a long time and these grants are offering a really unique opportunity that won’t come around often. But there’s also a lot of noise and advice out there at the moment, and not all of this is in buyers’ long-term interests.

“Our key priority is making sure buyers get the most out of this stimulus by not just achieving the best outcome now, but also ensuring this purchase meets their longer-term finance and lifestyle goals,” he said.

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