Real Estate Expert
The answer is yes, if you live in Victoria. Everyone on the east coast of Australia is well aware of the rising issue of affordability, which is particularly acute in Sydney but also a concern for Melbourne as both cities are leading the way in residential price growth.
Image via pinterest
This boom is now almost five years old, which is a very long run for strong price growth and we are yet to see signs of a slow down, mainly due to low interest rates, demand from investors and a lack of stock driving prices further north.
There has been much discussion around what Federal and state governments in NSW and Victoria should do to address the issue. Plenty of ideas have been put forward but the first government to actually do something is the Victorian government, with a series of measures recently announced to make home ownership easier for young people.
Most of these measures are still subject to approval by parliament but here’s a rundown of what they’ve proposed:
Abolishing stamp duty for first home buyers on properties worth $600,000 or less, with a sliding scale of concessions on properties worth between $600,001 and $750,000. All properties are eligible – both new and existing. These stamp duty changes will take effect from July 1 this year
The existing First Home Owner Grant (FHOG), which is available to all first home buyers who are either building or buying a brand new home valued up to $750,000, will be doubled from $10,000 to $20,000 for regional buyers. It will apply to contracts signed from July 1 this year through to June 30, 2020. Regional areas include the cities of Geelong and Ballarat. Eligible first home buyers of new properties in Melbourne will continue to receive the $10,000 FHOG
Introducing a co-ownership pilot scheme, whereby eligible first home buyers will be able to co-purchase a new or existing property with the Victorian Government. Called HomesVic, the scheme allows the government to purchase up to 400 homes with an equity share of no greater than 25% in each. The idea is to help young buyers who are capable of meeting loan repayments but simply can’t save the full deposit they need to buy on their own due to the cost of renting. With HomesVic, buyers will need a 5% deposit and income thresholds will also apply – couples $95,000 and singles $75,000. When the properties are sold, HomesVic will receive its equity share back. The scheme will commence in January 2018
At least 10% of all properties in government-led urban renewal developments will be allocated to first time buyers. This measure will be implemented for the first time at the Arden development in Melbourne’s north, which will mean about 1,500 homes will be reserved for first home buyers
Increasing land supply by re-zoning 100,000 lots across Melbourne to create 17 new suburbs
Introducing a Vacant Residential Property Tax to encourage owners in Melbourne’s inner and middle rings to make properties available for purchase or rent. The Tax will be 1%, so on a $700,000 home the tax would be $7,000. There will be exemptions, for example it won’t apply to holiday homes, deceased estates, city ‘boltholes’ used for work purposes and homes owned by Victorians temporarily living overseas. The tax will be implemented from January 1, 2018 for homes vacant for more than six months in a calendar year
In addition to the above measures, the Victorian government will also remove incentives for investors in a bid to slow demand in that particular sector. First home buyers typically end up bidding against investors for lower priced stock, so this should reduce competition at auction for young buyers.
Melbourne is a fantastic prospect for property investors with plenty of upside over the long term. Despite large scale price growth over the past five years, Melbourne continues to offer much better value to investors than Sydney. For example, the median apartment price in Melbourne is $480,000 with an average 4% rental yield while in Sydney it is $685,000 and 3.7%, according to CoreLogic.
Investors need to move quickly if they want to beat the deadline for changes such as the end of the off-the-plan stamp duty concession (this will remain for owner occupiers), which will see duty on a $800,000 investment apartment go from a few thousand now to more than $40,000 after July 1.
For first home buyers in Victoria, it’s time to start your research. Pick a location and the type of property you want and attend some inspections to gain market knowledge. Get yourself ready to buy after July 1.
Image via pinterest
Most importantly, don’t overextend yourself just because your stamp duty will be less. You need to be able to afford your repayments over the long term when interest rates are back at their long term averages of 7-7.5% so do your calculations based on this, not on today’s record low rates!
Affordability measures are expected to be announced in NSW soon, with the NSW government recently setting up a cross-government working group to brainstorm ideas for review by former Reserve Bank Governor, Glenn Stevens before a formal plan is announced to the public.
On May 9, the Federal Government is expected to include an ‘affordability package’ in the Budget to address the affordability problem on a national scale. Let’s hope they get it right.
Visit our online Education Hub RESCU Me Academy for our courses, free ebooks and resources.