Will the HomeBuilder grant get the desired results?

By now we all know about the federal government’s HomeBuilder scheme. Build Home

Announced as one of the key pillars of the government’s COVID-19 economic recovery plan, the new HomeBuilder scheme will give owner-occupiers a cash grant of $25,000 towards a substantial renovation for their principal place of residence, or towards a new-build property.

The question on everyone’s minds is: will the plan deliver?

Will we see an upswing in construction activity, or will the whole ideal fall flat?

Who is eligible for the HomeBuilder grant?

It seems like a generous offer: certainly in anybody’s language, $25,000 to upgrade your kitchen or build your dream home is a significant boost to the budget.

However, the program is limited by some fairly strict criteria.

  • For new home builds, the total value of the house and land cannot exceed $750,000.
  • For renovation projects, recipients must spend between $150,000 and $750,000 improving their home, which cannot be worth more than $1.5 million.
  • Applies for contracts entered into between June 4th and December 31st, 2020.
  • Applicants must earn less than $125,000 for singles or $200,000 for couples to be eligible.
  • The HomeBuilder grant cannot be used for additions such as swimming pools, tennis courts or sheds – it’s only to be used for renovations or extensions to the property itself.

Federal Treasurer Josh Frydenberg says that HomeBuilder will assist the residential construction industries by encouraging more new home builds and renovations that people might have otherwise put off, due to the uncertain economic climate.

This stance is backed up by construction lobby groups, who have predicted that new dwelling commencements will decline by 50% by the end of 2020, while the government believes there is going to be a shortfall of 30,000 new dwelling commencements in the second half of this year.

How many homes will this impact?

The government has forecast that around 27,500 projects will benefit from the HomeBuilder grant, but the way I see it, it may not have the huge impact they’re hoping for.

For a start, it’s available for owner-occupiers only as investors are ineligible.

If you’ve been eagerly awaiting this announcement because you were hoping to build a new investment property or renovate your existing one, you’re out of luck.

The short timeframe is another flaw in the program.

While I appreciate what the government is trying to do in kick-starting the construction industry to help the economy bounce back, the reality of building and renovating is that it’s never a quick or easy process.

Homeowners need to secure their finance, arrange quotes, have plans drawn up and wait for council permits to be issued, which any experienced builder or renovator will tell you always takes far longer than expected.

To achieve all of this within less than six months seems extremely ambitious.

Still: is it worthwhile upgrading your “renovator’s delight”?

At first glance, the scheme could be helpful for those who want to buy a “renovator’s delight”.

The time limits imposed will mean that everything needs to fall into place perfectly in terms of finding a property, organising finance and waiting out the settlement period, so that work can begin in time.Builders

Meanwhile, it also misses the mark for those planning a knock-down, re-build in the inner suburbs, where the value of properties tends to soar well past the $750,000 limit.

The amount homeowners need to spend on their renovation is, in my opinion, too high for this scheme to have any meaningful value for everyday Australians who weren’t already planning a significant renovation.

A $150,000 outlay is not just the budget for an updated kitchen and bathroom: it’s a large-scale renovation or, more likely, a dramatic extension.

I have a feeling that these projects will be in the minority, and new builds will make up most of the HomeBuilder recipients, which would be much better for the economy and the housing crisis.

This begs the question…

Why wasn’t it set up this way?

Why make renovations eligible at all?

It has been considered by some as inequitable scheme, giving those who already own a home (or are in a position to buy right now) a boost, without offering any assistance to those on lower incomes or first homebuyers.

Or, for that matter, for landlords who provide such a huge chunk of Australia’s affordable housing.

Can it be used with other grants and subsidies?

If you’re hunting for your first home and are ready to buy in the near future, you’ll be happy to know that HomeBuilder can be used in conjunction with other State and Commonwealth schemes.

This means that between the new HomeBuilder program, first homeowner grants available in your state, the First Home Super Saver scheme and any stamp duty concessions you may be eligible for, as a first-time buyer you could be tens of thousands of dollars better off.Building Boom

In fact, you may even save close to $100,000, once all of the grants and savings are tallied up.

However, given homeowners only have until the end of the year to qualify for the scheme, it’s unlikely to offer much of a boost to those who aren’t already in a good position to buy or renovate.

For those looking to purchase house and land in regional Australia, it could be a big win, as the value of their package is more likely to fall under the $750,000 cap than those building in the major cities.

And while there is the $125,000/$200,000 income limits to consider, a person or couple earning these amounts falls into the top income bracket, making them better off than 90% of Australians.

This means there won’t be many people who are excluded from the scheme due to income alone.

Is HomeBuilder going to stimulate the construction industry?

In my opinion, the jury is still out.

The rules are complicated and nobody really seems to understand how to navigate them. Construction Concept

For example, who has the job of assessing the value of an existing house and determining that its value is less than $1.5 million, therefore eligible for the program?

What happens if the market shifts and the property goes up or down in value in the meantime?

What is the renovation propels the property’s value above $1.5 million?

The rules around this are not clear at all.

It could also lead to all kinds of unintended consequences.

Unscrupulous people who don’t really need a leg-up could find ways to rort the system to their advantage, while those who could really benefit from it the most are likely to find it’s out of their reach.

I understand the intentions behind this program, and I appreciate that our government is flying blind yet doing their best to navigate this once-in-a-century health and economic crisis we find ourselves in.

But I can’t help but ponder if these hundreds of millions of dollars could have been better spent elsewhere.

For example, a grant to help the elderly or disabled make much-needed modifications or repairs to their homes could offer a similar boost to the construction sector.Building 2762342 1920

Alternatively, some kind of incentive for investors to build new affordable housing, along the lines of the National Rental Affordability Scheme, would keep investors in the market and ensure there are more options available for cash-strapped renters, while also stimulating construction – a win-win-win.

In any case, it’s an ever-evolving situation with this pandemic and it’s associated social and economic impacts, and the reality is we’re not likely to grasp the full extent of it all until well into next year.

In the meantime, if you’re lucky enough to be eligible to participate in HomeBuilder, my advice is to be smart about it.

If you’re renovating, use it to add real value to your property or improve your lifestyle, and be careful not to overcapitalise.

If you’re building, check that the grant hasn’t been absorbed into a new, inflated price from your developer or builder.

And, as always, seek independent, trusted advice to help you make the right decision for your unique situation.

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on

Metropole

If you’re wondering what will happen to property in 2020–2021 you are not alone.

You can trust the team at Metropole to provide you with direction, guidance and results.

In challenging times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s what you exactly what you get from the multi award winning team at Metropole.

If you’re looking at buying your next home or investment property here’s 4 ways we can help you:

  1. Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family.  Planning is bringing the future into the present so you can do something about it now!  This will give you direction, results and more certainty. Click here to learn more
  2. Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $3Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment grade property.  Click here to learn how we can help you.
  3. Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
  4. Property Management – Our stress free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years and our properties lease 10 days faster than the market average.
icon-podcast-large

Subscribe & don’t miss a single episode of Michael Yardney’s podcast

Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.

Need help listening to Michael Yardney’s podcast from your phone or tablet?

We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.

icon-email-large

Prefer to subscribe via email?

Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.


Michael Yardney

About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au


'Will the HomeBuilder grant get the desired results?' have 4 comments

    Avatar

    June 17, 2020 Marcus Neil

    I am a small Design and Construct Builder based in SE Qld. My recent experience regarding the Government $25k boost has been positive, with a potential Client who delayed their build a few months ago, now moving forward with my company as a result of the Government incentive. Yes the time frames are tight, but can be achieved. Lets be mindful, the Government is looking for an immediate impact in the building industry. Motivated Clients and Builders can meet these deadlines.

    I would also like to correct a comment made in the article …. ‘ it also misses the mark for those planning a knock-down, re-build in the inner suburbs, where the value of properties tends to soar well past the $750,000 limit’. If you refer to the Treasury Fact Sheet p3/4 you can knock down an existing home and rebuild within the HomeBuilder renovations price range $150 -$750k as long as the end valuation is less than $1.5m (which covers most properties in Brisbane). You can approach a local agent to obtain a valuation if required to support your application.

    Reply

    Avatar

    June 17, 2020 Andy Lemann

    One other thing that is not clear yet is whether the money can be spent on building granny flats. Hopefully so because a granny flat could fit nicely into the $150k price range for people who already own a home but don’t want to put that much into a renovation or extension PLUS it can help to provide more affordable housing.

    Reply

      Michael Yardney

      June 17, 2020 Michael Yardney

      Andy – my understanding is that a granny flat is not allowed under Homebuilder

      Reply


Would you like to share your thoughts?

Your email address will not be published.
CAPTCHA Image

*


Copyright © Michael Yardney’s Property Investment Update Important Information
Content Marketing by GridConcepts