The market downturn offers greater incentive to buy a first home than government rebates.

For first home buyers Sophie Arnold and Nicolaas Unland, the state government’s decision to offer a partial rebate on stamp duty for those purchasing their first property came as a welcome move.

With the $3474, they would be able to claim back in stamp duty and the $20,000 they would receive in first home owners’ grants, the couple decided against buying an established home, which would mean extra costs down the track.

Instead, they bought a new $420,000 home in Mooroolbark.

”We thought we could spend the extra money to get it and we don’t have to do anything to it,” says Ms Arnold, a 24-year-old interior decorator who manages a curtain and blind shop in Lilydale.

”Whereas some of the established homes we were looking at … you’ve got to spend another $20,000 to get it to where you want it to be.”

Announced with the last state budget, the rebate is being progressively rolled out, initially as a 20 per cent reduction, with a further 10 per cent to be knocked off in January 2013 and 2014 respectively and then a final 10 per cent reduction in September 2014, bringing the total rebate to 50 per cent of the stamp duty usually paid by first home buyers. It applies to homes that cost or are built for $600,000 or less.

The stamp duty rebate, which must be applied for after settlement, complements the existing first home owner grants. Under this scheme, buyers are eligible for a grant of $7000 when purchasing a home up to the value of $750,000. If the home is newly built and its price does not exceed $600,000, there is an additional bonus of $13,000.

Buyers in a regional area, in addition to the previous two figures, will get another bonus of $6500 if the price or construction does not exceed $600,000.

State government figures show that more than 28,000 people claimed the first home owner’s grant for an established or new home in the last financial year alone.

Earlier this month, a spokeswoman for Treasurer Kim Wells told The Sunday Age that the stamp duty cuts had assisted more Victorians to buy their first home, with government figures showing 1428 buyers had collectively saved more than $3.96 million in stamp duty under the program so far.”

However, Greville Pabst, chief executive of the WBP Property Group, says the stamp duty concessions so far appear to have had ”little impact” on the number of first home owners entering the market.

”While previous schemes have led to a spike in activity from this buyer group, the staggered incentive has created little initial interest from first home owners of both established houses and new houses,” he says.

Robert Larocca, spokesman for the Real Estate Institute of Victoria (REIV), says the organisation welcomed the move to cut stamp duty. But he said the REIV had lobbied for stamp duty on first home purchases to be dropped altogether.

”Every dollar counts when you’re buying your first home and the [initial] 20 per cent cut will save you between $2500 and about $5000 depending on the price of the home. When you’re a first home buyer, that’s significant – that can be a bit of extra furniture, a good fridge, those sorts of things, and it will all be welcomed.”

Mr Larocca says the REIV is continuing to push for stamp duty to be completely dropped – not just for first home buyers. But short of a federal-state agreement to remove Victoria’s reliance on stamp duty, the organisation would like to see, among other things, the stamp duty scales changed so that the percentage of stamp duty charged remains the same regardless of the home’s sale price.

Another government incentive to encourage first home buyers came in 2008 with the introduction of the first home saver account (FHSA).

Under this federal government scheme, first home buyers qualify for concessional tax treatment (earnings are taxed at a 15 per cent rate) and government contributions (17 per cent on the first $5500 deposited in any one year) provided they make deposits into their FHSA over four financial years.

Savers who bought a property before the four-year eligibility period was up were previously required to put their FHSA funds into superannuation. But this rule was recently changed so the money could be put into a mortgage instead.

The federal government was unable to provide figures on the number of people who have taken up the FHSA in Victoria. Instead they pointed to data on the Australian Prudential Regulation Authority website showing that as of June 2011, 31,900 accounts had been opened Australia-wide and contained a total of $230 million.

Monique Sasson Wakelin, a director of Wakelin Property Advisory, believes there are many problems with the FHSA, including that they are too limited, are onerous to manage and do not provide a sufficient incentive for people to use.

Ms Wakelin would like to see limits removed on the amount that can be accumulated in the accounts or the length of time they need to be kept open, along with complete tax exemptions.

Mr Pabst believes the FHSA scheme has done little to assist first home buyers, given that the maximum government contribution is just $935 a year.

”Given Melbourne’s strong growth, it is unrealistic to think that the First Home Saver Account initiative will create any benefit for first home owners who are being priced out of the market,” he says.

All the real estate experts spoken to by Sunday Domain agree on one thing: that the real bonus for first home buyers now is not the grants or concessions government throws at them, but the downturn in the market. ”The real concession is that the market is in a bit of a hiatus,” says Ms Wakelin.

For Ms Arnold and Mr Unland, their only complaint is that they have to claim the concession as a rebate after settlement rather than receiving it as an upfront reduction in the amount they must pay.

”It sort of meant we had to borrow that little extra … and then later we get it back and it comes off our mortgage,” says Ms Arnold.

Joys of ownership

First home buyer Daniel Mayes and his wife Katie are expecting to save more than $3400 in stamp duty. This means the couple can use the extra cash to improve the Boronia property they bought before theymove in.

It will include putting new carpet all the way through the three-bedroom, brickveneer house, which dates from 1978, as well as painting the house and building a pergola.

”[The stamp duty savings] allowed us to get it to what we wanted,” Mr Mayes, a 38-year-old purchasing manager, says. ”Otherwise we’d be steam cleaning and putting up with it.”

Having previously rented in Glen Waverley and Blackburn, the couple, who have two children aged 16 and 10, had been looking to buy a house for some time but were waiting until the price tag was right.

”I’ve looked at the market for the past two years and just pounced when I saw the prices had started to drop,” Mr Mayes says. ”And then [there was] the added bonus of the stamp duty savings.”

As well as stamp duty savings (Mr Mayes should pay $13,896 instead of the usual $17,370), Mr Mayes also received the $7000 first home buyers grant. The family purchased the property for $420,000 through Barry Plant in Wantirna in a private sale.

Mr Mayes is looking forward to having his own house. ”So on the weekend if you’re bored, you can go and do something in the garden that benefits you and not just the landlord,” he says.

Posted by David Adams – The Age Domain on 25th September, 2011