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EYE-BALL Guru on – The First Home Owners Grant – the fallout and a reflection on a stupid stupid Government policy …

October 16, 2012
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Title:
– The First Home Owners Grant  –
– the fallout and a reflection on a stupid stupid Government policy …
| Author: EYE-BALL Guru |16th Oct 2012 |
The Howard Government introduced the ‘First Home Owners’ grant to offset the cost of GST on home purchases.  The initial grant was set at $7,000.

In the 12 years since the, $2.8 billion of taxpayers funds has used to put buyers in 341,077 homes.  The scheme is administered by the States under a Federal initiative, the QLD State claims it funds the grant, but that is disputable because the Feds cover the cost in their annual grants to the States.

Let us think on that $2.8 billion for a moment – is the value and who it has been given to discriminate –

  • only 341,077 became eligible – that represents about 1.55% of the total 22 million Australian citizens – 3% if there was a partner as well, and let’s say maybe 5% if there were children involved – the point being it was a small demographic …
  • the funds would have been largely used to cover legal and deposit requirements to assist making home buyers eligible.
  • from 2000 to 2007 property prices increased significantly and that top up gave the recipients of the grant a leg up to a tax-free capital gain that would have been probably at least double what they paid for the house during 2000-2003-4.
  • those who purchased post GFC and in the immediate period before are now having to sell their home and will still own the Banks money because property values are less than the mortgage value.   Their grant money is gone …

So let us put the use of these funds into a true perspective.

The reason for the grant was originally to offset GST – with the explosion in property prices up to 2007 – Governments (States) saw the need to increase the grant to incentivise home buyers. That kept property prices on the up and at a time when the world property bubble had burst everywhere else due to the sub-prime collapse and then the GFC.

State Governments were using the Federal funds like a bank on a maxed out credit card.  They saw building stats and tried to do something to ‘plug a hole’ they saw coming with no thought to the repercussions down the line.

This was mainly Labour Governments across Australia inducing home buyers into over-inflated property prices at a time when it was all about to collapse – the Banks have to wear their responsibility as well – they over valued homes to suit purchase prices and the loans needed to purchase the property.

Mortgage brokers had a field day ad when the shit hit the fan 2009-10 – the grant was still available.  Even now Premier Newman is raising the grant to $15,000 on properties valued at $750,000 and there are deadlines attached to make buyers rush their decisions.

Please read the story below:

Government counts the cost of first-home buyer grant


| Author: News.com.au | Date: 13th Oct 2012 | Link to On-Line Story. |

ABOUT $2.8 billion has been spent on helping Queensland first-home buyers into the market.

The figures have been revealed this week following the end of the first-home buyers grant in Queensland for existing properties.

The $7000 grant for buyers of existing properties has been replaced with a $15,000 grant for first time buyers purchasing a new property valued at up to $750,000.

[QLD] Treasurer Tim Nicholls said since 2000, 341,077 First Home Owner Grants had been paid to Queenslanders, costing $2.8 billion.

Only about 14 per cent or 48,000 were for the construction of new homes.

Mr Nicholls said the grant for new properties would help improve the construction sector. It is hoped there will also be a flow-on effect through those building new properties spending more on furnishings, finishes and landscaping.

“Inquiries to the Office of State Revenue have doubled since we made the announcement (about the new grant),” Mr Nicholls said.

Real Estate Institute of Queensland CEO Anton Kardash said it was too soon to have received any feedback about the affect of the changes.

He said in the lead up to the removal of the grant for existing properties agents had reported a bit more activity in the market place, but he was unable to pinpoint what had caused that.

“Our concern is that history suggests this is not a successful mechanism for getting first-home buyers to buy new houses,” he said.

“I hope to be proven wrong, but we know historically it does not work.

“I can understand the need to stimulate the new house market, we don’t disagree with that, it has been in the doldrums for many years now.”

Mr Kardash said the majority of people purchasing properties – around 76 per cent – bought existing properties.

“Therefore it would seem odd you would actually not do something with that large group of people if you are trying to stimulate the general economy.”

Real Estate Buyer’s Agents Association of Australia spokesman Scott McGeever hopes the changes will bring a flurry of investors back to the market.

“Scrapping the existing grant will potentially see more investors back in the market buying properties that are a year old or more with less competition from first home buyers,” he said.

This policy was introduced with good intentions to offset the GST. 12 years later State Governments are now using it to prop up a building industry – the logic is stupid to say the least – the lawyers, real estate agents, are the ones who end up with the money in their hands – the poor buyers have the grant value tagged onto the loan value and have to pay it back to the Banks with interest.

The policy was misguided from the outset – yes the early buyers who bought homes in the early 2000’s when property prices rose were advantaged.

Since 2007 – all home grants have been used to buy homes that had inflated values and in a falling property market.  The poor home owner has been totally screwed.

As if $15,000 is going to make a dint in a deposit or mortgage to help pay for a $750,000 loan.  If a buyer can afford to buy a home for that value – they should not be getting assistance from any Government.

Premier Newman’s policy on this increase grant value demonstrates his economic credentials and are on a par with Treasurer Swan.

My major bug is that it only gave some 1.55% of the population any direct assistance – any secondary feed off arising from the home purchase was chewed up ant future capital loss attached to the property.

Just an idea – Howard and Costello could have just made GST waivers for home purchases like they did with a host of other exempt GST items.

This was just about the dumbest policy any Government has ever introduced – although well intended at the outset – nobody had a clue to the real cost and benefit some 5, 10 and even 20 years down the track.

$2.8 billion has just been pissed up against a wall and who will claim responsibility … I would like a $15,000 handout as opposed to giving it to some Lawyer, Real estate agent, or added to a Bank mortgage …


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The EYE-BALL Guru …

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  1. October 17, 2012 at 4:15 am

    I couldn’t agree more Guru.It was always said by Swan & Co that Australian banks were more responsible than those overseas but IMHO they were just as bad. Bank staff are under constant pressure to push unwanted, unnecessary, unaffordable housing loans and other bank products onto gullible customers, many of whom have neither the intelligence to understand exactly what they are signing up for nor the means to handle repayments and servicing the loan. The same principle applies to credit cards. Some people should never be offered credit cards let alone be bombarded with offers to increase limits!

    Once upon a time people who charged 20-25% interest on money lent were reviled in the community and known as loan sharks preying on poor simple folks who had got into difficulties. Now they’re called banks and have the cheek to claim the interest rates are so high because they have to cover all the bad debts (they don’t add “caused by the high interest demnded on credit cards)!

    As for Wayne Goose, remember when he completely skewed the investment market by giving bank deposits a 100% government guarantee on all funds, instead of the much lesser figure he was advised to do. Money flowed out of taditional investment organisations so fast, wiithdrawals had to be frozen to maintain the institutions. Self-funded retirees could not access any of their money so the Goose told them they could apply for Centrelink payments, to which the manager of Centrelink replied,-No,they can’t, they don’t qualify because they have too much investment.!

    It would be interesting to find out how many of those 341,077 who received the grant still have their homes!

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