The HomeBuilder pitfall you MUST know: Government’s $25,000 grant to renovate your house could get you burnt – here’s how to avoid it
- Real estate data group CoreLogic worried about $25,000 renovation subsidy
- It’s available for homes worth up to $1.5million, restricted to owner-occupiers
- Home owners have to spend $150,000 to $750,000 renovating existing abode
- CoreLogic’s Eliza Owen said people living in poorer suburbs risked losing money
A leading real estate expert has warned home owners in some suburbs risk getting burnt financially if they renovated their house with a $25,000 taxpayer subsidy.
Under the federal government’s new $688million HomeBuilder scheme, owner-occupiers are entitled to a grant if they spend $150,000 to $750,000 doing up their house.
The grant is available for homes worth up to $1.5million – a level 50 per cent above Sydney’s median house price of $1million – in a bid to stimulate construction activity during the COVID-19 pandemic.
Eliza Owen, the head of research with real estate data group CoreLogic, said home owners in poorer suburbs risked losing money if they spent too much on renovations with the government subsidy.
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A leading real estate expert has warned home owners in some suburbs risk getting burnt financially if they renovated their house with a $25,000 taxpayer subsidy. Under the federal government’s new $688million HomeBuilder scheme, owner-occupiers are entitled to a grant if they spend $150,000 to $750,000 doing up their house. Pictured is a stock image
‘For areas where dwelling prices and incomes are relatively low, this may lead to owners over-capitalising on renovations, where they cannot recoup the cost of upgrades to the property,’ she said.
Sydney, Australia’s most expensive property market, has cheaper houses almost 40km west of the city centre, including Mount Druitt where the median price is $580,576.
CoreLogic analysed the top ten suburbs in Australia, with the most number of homes worth up to $1.5million.
No Sydney area made the list, with most of its suburbs being too expensive.
‘For Sydney’s northern beaches and eastern suburbs, many properties surpass the $1.5million property value cap to qualify for a renovation grant,’ Ms Owen said.
Brisbane, Darwin and Hobart didn’t make the cut either, with their suburbs generally having a much lower mid-point price.
It’s available for homes worth up to $1.5million – a level 50 per cent above Sydney’s median house price of $1million. Pictured is Brisbane foreman Nick Mus on June 4, 2020
Melbourne took out four spots on the top ten list – including the city’s south east, west, outer east and north east.
How COVID-19 rules are affecting house prices
Sydney: down 0.6 per cent or $9,692 to $1,016,726
Melbourne: down 1.1 per cent or $9,532 to $809,274
Brisbane: flat at $559,975
Perth: down 0.6 per cent or $4,155 to $461,366
Adelaide: up 0.4 per cent or $2,045 to $478,294
Darwin: down 0.9 per cent to $473,861
Hobart: up 0.8 per cent to $514,496
Source: CoreLogic Hedonic Home Value Index data for median house prices, May 2020. Dollar figure movements based on April 2020 data before revisions
‘In fact, there are four Melbourne regions that have over 100,000 owner-occupied properties estimated to be valued under $1.5million,’ Ms Owen said.
‘These regions represent the fringe of the metropolitan area, and include some relatively low-income areas compared to the inner-city regions of Melbourne.’
Perth claimed two spots on the top ten list, with Adelaide’s north, the Gold Coast and Canberra also in the same league.
Ms Owen said the government’s HomeBuilder scheme would be unlikely to spark new building activity, with most recipients of the $25,000 subsidy likely to have already been planning major home renovations.
‘While potential home owners are likely to be keen to take advantage of the scheme, many have noted that the policy largely creates stimulus for those that were planning to build and renovate anyway,’ she said.
‘So instead of creating additional demand for construction work, it may just bring construction forward.’
Ms Owen said this would create a ‘vacuum effect’ where a government stimulus program created activity only for there to be a lull once the scheme finished at the end of 2020.
‘It reflects a surge in buyer activity soon after housing grants are made available, and a significant drop in activity thereafter,’ she said.
Dr Nicola Powell, a senior research analyst with property sales site Domain, suggested the government may have to implement a new property sector stimulus program in September, when the banks ended their six-month mortgage repayment holidays.
Eliza Owen, the head of research with real estate data group CoreLogic, said home owners in poorer suburbs risked losing money if they spent too much on renovations with the government subsidy. Pictured is a police officer at Tregear near Mount Druitt in western Sydney in January 2019
‘Will we have any policies in place that reignite activity in certain buyer segments, for example first-home buyers?,’ she told Daily Mail Australia.
In October 2008, during the Global Financial Crisis, Kevin Rudd’s Labor government implemented a $10.4billion stimulus program which included a temporary tripling of first home buyer grants to $21,000.
Despite those efforts, Australia’s economy still shrunk by 0.5 per cent in the December quarter of that year.
More than a decade later, the economy contracted by 0.3 per cent in the March quarter of 2020, marking the first gross domestic product dip since 2011, even though most of the coronavirus shutdowns didn’t occur until the final week of March.
Treasurer Josh Frydenberg is expecting Australia’s national accounts to also show a contraction in the June quarter, which would mark the first technical recession since 1991.