Why first home owner grants and incentives could end up costing you thousands
Written by Meighan Wells
Right now in Australia there are some pretty big first home buyer grants and incentives on offer but are they right for you?

Many first home buyers are rubbing their hands together with glee at the prospect of thousands of dollars in Government grants and incentives. But most of those are only available if you buy a brand-new property. This might be very tempting but there are so many short- and long-term risks that you have to be aware of before you proceed.

First home buyer grants and incentives currently on offer.

It is an exciting time to be a first home buyer in Australia. Never has there been so much money offered by the Federal and State Governments and this is creating a flurry of buying activity.

There are four types of Government incentives currently on offer for first home buyers as at 2nd February 2021:
First Home Owner Grant – this is a Federal initiative but administered by the States and offers $10-15K depending on the state or territory you are buying in. There are different price caps depending on where you buy and plenty of rules to follow.
Stamp duty concessions – these are State based concessions with price caps and a few rules around how long you have to live in the property.
First home loan deposit scheme – this is a Federal initiative that started in January 2020. It allows some first home buyers to purchase any property with only 5% deposit and avoid having to pay Lenders Mortgage Insurance – potentially saving thousands of dollars. There is a long list of rules, income caps, price limits and qualification criteria as well as a limit on the number of positions available and timeframes that you have to purchase within.
HomeBuilder grant – originally launched during COVID to stimulate the building industry, this was a $25K grant towards a new build or renovation. To qualify, the building contract initially had to be signed before 31/12/2020. This was subsequently extended to 31/3/2021 but the grant amount was reduced to $10,000. There are limits on the pre-renovation value of the property, building / renovation contract amount and income thresholds.

We are not going into great detail on each of these here but you can download our State by State Guide to Grants and Incentives to find out more about what is on offer in your state or territory and what the rules and limitations are for each one.

It is important to realise that these incentives are to stimulate the construction industry, which employs a million Australians, and therefore, is a significant boost to the economy. First home buyer grants are not there to help you get on the property ladder with a high quality property.

You may be wondering why we think this is such an issue.
If the grant and incentives were there purely to help first home buyers, then they would apply equally to established property as well as new builds.

The biggest risk with first home buyer grants and incentives is that, in the rush to take advantage of them, you buy the wrong property.

We do have serious concerns about the limitations of each scheme. Nearly every one of them restricts you to purchasing brand new or off the plan. Some are offered for substantially renovated homes and there is not a lot to encourage you to buy an established home.

The exception is the Federal Government's 5% deposit guarantee scheme because you are not limited to buying brand new. However, you are encouraged to favour new properties due to the higher price cap that applies if the property is new. If you qualify and get a spot on the list, you are only restricted by the price cap and income limits that apply in your location.

The biggest risk with being forced to buy brand new to qualify for the other grants and schemes is that of negative equity. This is where prices fall below what you paid and you end up owing the bank more money than the property is worth. This risk is greatest with brand new houses and apartments and also if you pay too much for an established property. The really worrying thing is just how often this happens.

Brand new apartments and houses, particularly in new subdivisions or large complexes, lack the basic fundamentals needed for long term capital appreciation. So if you don't plan on living in your first property for the rest of your life, you need to think about whether buying brand new just to qualify for a grant or incentive is worth the risk.

We understand that it is tempting to let your decision on which property to buy be influenced by the lure of free money.
But, the decision about which property to buy as your first home is far too important to be influenced by the wrong factors.

Download our state-by-state guide to grants and incentives and listen to Episode 3 of our podcast Your First Home Buyer Guide where we walk you through a real case study about using grants to buy land and build a house.

How ready are you to buy your first home?

Veronica Morgan & Meighan Wells 

Veronica & Meighan are both licensed real estate agents who exclusively help buyers. Together they have nearly 40 years experience as property professionals.

Veronica is principal of Sydney based Good Deeds Property Buyers and is also co-host of The Elephant in the Room property podcast as well as Location Location Location Australia on Foxtel and author of Auction Ready: how to buy property at auction even though you're scared s#!tless!

Meighan is the multi award winning principal of Brisbane based Property Pursuit, chairperson of the REIQ Buyers Agent Chapter & a regular media commentator.

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