Tuesday, June 12, 2012

NSW Budget: Gambling on FHBs & Lottery Revenue

I ended an earlier post today on the following note:
I suspect we are yet to see the full effects of the recent interest cuts (with potentially more to come) on the Australian housing market, but fingers crossed those most vulnerable don't succumb to over leveraging in a housing market which is still well inflated and in my opinion has some way yet to fall. 
It must have been only 10 minutes after posting it that I spotted NSW was changing their First Home Owners Grant in their new budget...
From 1 October 2012, the First Home Owner Grant will more than double to $15,000 and then continue at $10,000 from 2014 for first time homebuyers of new properties. Existing first homebuyer stamp duty concessions will apply to new properties up to $650,000.

Additionally, a new measure, the New Home Grant, will provide $5,000 to all non-first homebuyers of new properties.
The interesting part is that they are doing this at the expense of existing homes (FHOG will be exclusive to buying new homes) as pointed out by Jonathan Chancellor on Property Observer:
But it comes at the expense of buyers of existing homes, who will lose thousands of dollars in incentives from October 1 this year.

From October, a first-home buyer who purchases a $550,000 new home will get $35,240 in assistance. But if it is not new, the first-home buyers will secure nothing.

First-home buyers of existing properties, about 90% of the market segment, will receive no government assistance with major ramifications for estate agents who sell existing properties in this market.

Property investors can also expect land tax bill increases in the next year. Land tax revenue is forecast to grow by 8.1%.

First-home buyers will receive up to $35,240 in government handouts when purchasing a new home from October 1, for a 15 month period before its drops back.

But the longstanding $7,000 first-home owners' grant, negotiated with the federal government when the GST was introduced in 2000, will no longer be given to buyers of existing homes, replaced by a scheme that gives $5000 for only new homes.
Now given that construction of new homes in New South Wales was running at 50 year lows six months ago it's not surprising that they want to boost those levels to meet demand, but I'm not sure they are going the right way about it.

With interest rates falling, a stamp duty concession and increase in deposit (via the grant for new homes) First Home Buyers will potentially be able to leverage themselves into properties they wouldn't have otherwise been able to afford. Sound familiar? It's a good thing this grant is for new homes only, so existing stock shouldn't see prices pushed higher as we saw during the 2008/2009 "boost period", but that won't stop unsophisticated First Home Buyers from paying through the nose for over priced property.

Using a $550k purchase price (used as lowest price example in budget document), the borrower will need to have as little as $12.5k + fees saved on their own for a 95% lend (capped LMI) once you consider they will receive $15k assistance from the grant and won't have to pay stamp duty.  Of course they have to be able to service the loan, but with rates back at historically low levels it's easier to service a large loan today than just about any other time in history except for the last time rates were dropped this low 3.5 years ago.

No doubt developers will be rubbing their hands in glee at the prospect of another round of suckers ready to leap frog each other for an overpriced, poorly constructed home in a mortgage belt suburb 40km out from the Sydney CBD. Is this the right way to solve the "housing shortage" in Sydney or are we simply setting up another bunch of home buyers to fail?

Another sound bite from the budget:
I can also confirm we are investigating the potential to securitise part of the future lottery revenue duties – a move to bring forward future revenues for today's infrastructure.
Or CBOs (collateralized bet obligations) as Mav cleverly named them on Twitter.

What sort of ponzi budget are they dreaming up in NSW where they plan to draw forward future gambling revenue to pay for today's infrastructure projects? Unbelievable!

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  1. weeeeeeeeeeeeeeee

  2. you didn't mention speeding fine revenue ... that's a gold mine!

    1. Basically just feeding off our misery. Gambling, speeding tickets, ridiculous house prices, all sources of funds for our Governments!

  3. If it wasn't so tragic, I'd say it was a joke!
    The scary thing is;
    People's memories are short enough to fall into a trap it once would've taken a generation or more to forget.
    Now, instead of falling into a trap their grandparents may have fallen into, they'll be falling into one their older siblings did.
    The REAL irony of this imho is the fact people keep voting for these financially inept governments.
    It's enough to make one shake ones head in disbelief.