Beware building for the sake of free money

In Western Australia, eligible first home buyers could receive between $44,000 and $70,000, thanks to existing first home owner grant and duty concessions, combined with new HomeBuilder measures “if they sign a contract to build or purchase a new property under construction before 31 December 2020”.

It’s a “great opportunity for first home buyers to enter the market”, according to Momentum Wealth’s residential investment committee chair Emma Everett.

“The stimulus provides a great opportunity for buyers to get into their first home sooner than planned, but these new building grants are also somewhat geared towards house and land packages in outer suburban housing estates, many of which are already facing oversupply.”

The consideration has led her to warn buyers not to overlook the risks and cost of building or buying in the wrong area.

“This isn’t to say don’t build or buy a new property, but buyers need to be careful about where they do it, keeping in mind the implications on their property’s future value as well as their own lifestyle requirements.”

“One of the key risks for buyers who purchase in these outer areas is that they will not just be competing with the existing supply already on market, but also new stock that comes on stream from future developments, which could not only hold back their property’s long-term capital growth potential, but also accelerate price declines in a future downturn” she explained.

Rather than buying in outer areas where there could be such an oversupply, Ms Everett has touted the suggestion that buyers “could look at purchasing an infill lot in an established suburb closer to the city, or a townhouse or villa under construction in a more tightly held area where there’s less competing stock, better amenity and a higher land value advantage to drive the property’s [value] growth over time”.

She argued that “at the end of the day, if you’re paying $20,000 too much to purchase a lot or house and land package that won’t pay you back in its end value, that’s going to defeat the object of qualifying for the grant in the first place”.

Just as importantly, the investment expert conceded that “you don’t want to be purchasing a poorly located block of land just to receive the full $70,000 in grants if that property is going to decline in value and reduce your long-term returns, where purchasing a villa or townhouse would benefit you more in the longer term due to stronger capital growth”.