Australian Property Investment – What Does the First Home Owner Grant Mean to You?

Property investors and first-time home buyers often go head to head for the same property. The big bad property investors in Australia though have been at a disadvantage because of the Federal government’s first home buyers grant. The on-going scaling back of that grant gives both first home buyers and investors an opportunity – here’s how.

The Federal First Home Owners grant is currently being reduced. Last week it dropped from $14,000 to $10,500 for buyers of established homes and from $21,000 to $14,000 for buyers of new homes. On 1 January 2010 both grants will drop to $7000 – their original level.

The increased grant levels, which were introduced to prevent a US-style crash of property prices in 2007. To that level they have worked – but at a price. Research suggests that prices have increased at a rate of around $30,000 to $40,000 – suggesting that all the increased grants have done is given real estate agents higher commissions, kept developers in business, and left first home buyers with a large mortgage on a property they probably paid too much for.

The fall out could be pretty ugly for those that want or need to sell a house attractive to first home buyers in the early new year. On the flip side there could well be some great buying opportunities for investors looking to get into the market. Here’s the logic. For the last six or more months Australian home buyers have been repeatedly told that they must buy before the grant goes away – sales have been strong in the last two quarters and mortgage figures that many have done just that. At least some of those buyers have brought forward their purchase to this year while all else being equal they would have delayed buying an Australian property until next year. These buyers are convinced that on 1 January 2009 they will “lose” $7000. While that’s true – its hardly the point. The point is that a house that has been on the market for a while, come January will have a negotiable price – and if you can’t get at least $14,000 off the asking price I’d suggest you walk away.

As an investor I would be aggressively looking for developer’s properties which have been on the market too long and I would be putting in cheeky low-ball offers come January – a traditionally slow buying month in Australia anyway. As a first home buyer I’d be doing the same – basically you will always out-bid an investor if you really want the property – but for goodness sake don’t be a bunny and pay their price!

And if I had a property to sell to in this part of the Australian property market – I’d have it on the market NOW not later! There are always winners and losers in property investing – just be clear which side you are on.