23 May 2008

ACT Libs idea - no Stamp Duty for new home buyers on dwellings up to $500k

| turbodewd1
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I’m a recent first home buyer and I admire the notion of trying to help first home buyers but I am not sure Zed Seselja’s idea will be very effective. Why?

Well in NSW (which uses the same threshold) the no-SD for 1st home buyers seems to simply have caused prices to move closer to the $500,000 threshold. My girlfriend and I searched around Jerra and Gungahlin for a home and found Jerra to be relatively expensive even though the houses would have been SD free. Admittedly the demographic of Jerra may explain some of this. We actually found Gungahlin to be better value despite ACT houses attracting stamp duty!

I suspect any rational home seller currently trying to obtain, say, $450,000 for his/her house will attract people with about 468,000 to spend (SD being about 17,000 on such a house at the moment). Now if add Zed’s new threshold the seller will realise that those willing to spend 468,000 will consider his home, so he will jack up the price accordingly. In effect this will create extra demand and take the money from the ACT govt in forgone SD and give a free kick to existing homeowners whose houses are under $500k.

I believe about 20% of home buyers are first home buyers at any given time but certain house types, esp. the cheaper 3 bedroom houses for example will surely sure a bit in price. The SD-free threshold doesnt increase supply and doesnt reduce demand, it will actually create demand and drive some prices up. It will warp the market just as its warped in NSW.

The only solution is to either increase supply or reduce demand.

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Go CAP07!!!!

Canberra bushfire victims are the new Working Families.

Lenient forgot to mention that there would be no gas-fired power stations built near former bushfire victims.

Before my aged memory fails yet again, I should mention that a person of my acquaintance (whom I believe to be a contributor on this site) has taken to referring to the Community Revival Alliance Party. Can’t work out why.

Lenient: ROFLMAO! That’s the post of the week!

> I wonder if the Comunity Alliance Party has a position on this yet?

The CAP has lots of policies:

1) no stamp duty for first home buyers whose home got destroyed in the fires (they need a bit of work on this)

2) equal access to basic human rights (like marriage) if your house got burnt down in the fire

3) reprieve from roo cull if you house was burnt down

If Zed drops the government take where a house is less than $500K, this will create an artificial price point to which other prices will go up as well as down (ever wondered why so many caryards used to sell, and probably still do, cars for $2999?).

More worryingly, he will increase the heat in the market, which will drive up demand and push prices closer to the magic number at which point they become more expensive. The net result may well be that a reduction in the government take by $X will increase demand, pushing the price up by more than $X. (Something similar happened when there was an increase in first home grants, with the generous payment more than eaten by increases in price in the bigger markets). And, depending on the way shading, phasing and transitioning are done, there will be some effects on the way buyers and sellers negotiate price and on the integrity of valuations submitted – ultimately the public will pay.

This proposal, if no other that he will run, is proof that Zed is not up to the job. By the way, I wonder if the Comunity Alliance Party has a position on this yet?

> You set the price for your house on the market as a whole, houses in the area, of the same size, amount of supply and the current demand.

The market sets the price not the seller, that is an axiom of economics

The only solution is to either increase supply or reduce demand.

options
1. Move out of Canberra (reduces demand AND increases supply. win/win.)

I deliberately put #1 at the top, becuase it also reduces demand on water too = good for environment

tylersmayhem said :

Do you mean one like this Thumper (http://www.allhomes.com.au/ah/ah0073?slid=-228944812) Sweet!

You’re too late – its under offer.

VYBerlinaV8_the_one_they_all_copy said :

It’s always dangerous to assume that just because something doubled in value over the last 10 years that it will happen again.

Over the last 20 years Canberra house prices have increased on average 6.8% per year, or slightly less than doubling every 10 years. The exact details have been previously posted here in a similar thread.

The argument that a decrease in stamp duty for a small portion of the market for houses is going to push house prices up on a whole is a somewhat stupid one. Stampy duty for houses worth about 500k is worth 20k, it is paid to the ACT Government, vendors don’t see any part of it so it is highly doubtful that you could try and predict whether a 1st home buyer is going to purchase your house to set a price on.

You set the price for your house on the market as a whole, houses in the area, of the same size, amount of supply and the current demand. Currently the supply of houses has increased due to the higher interest rates and the demand has decreased for the same reason, hence a market with a lot more houses in the mid price range. A decrease in stamp duty is going help new home buyers afford a house in the range, its not going to help them out considerably in paying it off over the next 25 years, they’re not going to be out buying houses worth an extra 100k, the effect on the market as a whole is going to be minial.

I am sure the libs have a lot of thought into this “idea”…. probably along the lines of ‘this sounds a vote winner’.

Pity that the economic reality is that buyers will end paying just as much as prices inevitably rise in response. The same kind of thing happened when child care rebates were introduced… surprisingly child care rates rose.

Only developers will profit from this policy. In the meantime, govt revenue drops and anyone who isn’t a first home buyer suffers from higher rates, increased parking fines and roo cull levies.

CanberraResident4:20 pm 23 May 08

Reading this week’s Canberra Chronicle, the Real Estate section Property of the Week is $389,000. It’s at 38 Candlebark Road Queanbeyan; looks very modern and inviting. Have a look. I do understand what turbodewd1 is saying though, but sometimes, a real bargain can be found in areas other than your preferred suburbs. Yes, Jerra has a better reputation and more “affluence” attached to it, but people are sometimes far too quick to dismiss the gems you can find over the border in Queen-bee.

Also, maybe as your first home, you should aim for a 2 bedroom townhouse – get some equity into it – and then aim for something bigger later on.

I live in Gungahlin (AKA the outskirts of Kabul), and somedays I wish I was living in Queanbeyan … more trees out there … lovely park. The Gungahlin “park” is a whole lotta concrete …

All the best with your first house.

VYBerlinaV8_the_one_they_all_copy4:08 pm 23 May 08

It’s always dangerous to assume that just because something doubled in value over the last 10 years that it will happen again. The last 7 or 8 years has come after well below average returns during the 10 years before that. I think tylersmayhem is pretty much correct on her prediction about the next 7-10 years. The 10 years after THAT, however, will likely see another round of boom.

VYBerlinaV8_the_one_they_all_copy4:04 pm 23 May 08

2 quick clarifications: It was LESS than 10 years ago, and I didn’t buy it because I couldn’t afford to buy anywhere at all at the time.

I rented for 3 years while saving hard. Then I could buy.

Houses were definitely cheaper back then, but I was earning a lot less (I make about 6 times what I made 9 years ago).

tylersmayhem3:56 pm 23 May 08

I think another problem here is that it was once possible to double, or even triple the value of a property over a 10 year period. Do you honestly believe that if I buy a property for $400K in 2008, it’s going to be worth close to a million in 10 years time? I don’t think so! Those days are over, or at least for a very, very long time.

What is starting to happen, and probably worsen over the next few years (and it happening more and more in NSW), is that people are panicking and rushing out to buy, gets a mortgage on a $400K property, and 3 years later paying off the same property which is now worth $350K. That pill is pretty bitter!

I don’t think Nyssa is a good person to provide a scolding to about housing to vg. From what I’ve seen she’s not after a mansion, just a place – any place – that she can call hers (and her family’s).

No argument, people want to buy bigger houses than they need; but that’s not the only driver. Houses are really frickin expensive. Given your good fortune (i.e. you got into the market before houses got so expensive, you’re not a financial guru) you’re pontificating from a position of comfort about the value of financial responsibility and the “trouble with current society”.

Holden Caulfield3:47 pm 23 May 08

Where’s Pottsy?

vg, not everyone wants that and AG is right, wages haven’t risen to match the house price boom.

Mine have.

House prices have doubled in the last 10 cyears – wages haven’t.

tylersmayhem said :

Please read my last comment again:

What I’m saying is houses that used to be reasonably priced at $250K are now between 450 – 500K.

Yes, and cans of Coke used to cost 50c and Paddle Pops 20c.

Geez, I even remember when petrol was 40c/litre.

My first house suited my lifestyle. Single and on a good wage. My second house (bought with profits from the sale of the first) suits my current lifestyle. Married with kids. The larger problem is people bite of more than they can chew. People seem to think that standard is 4 brms with an ensuite, study and internal access double garage. I grew up in a family of 5 in an ex-guvvy. 3 brm, 1 bathroom. We had plenty of room.

The trouble with current society fiscally as that people buy too much of what they don’t need, with money they don’t have, to impress people they don’t like

VY, did you read what you posted?

The property in the link above is fine for a first home. I lived in a smaller place than that (further from services too) when I started out less than 10 years ago.

Ten years ago….

Now days what you considered ‘ok’ is out of the reach of first home buyers.

I’ll buy the 2br dump for $350000 just because I can afford that and only that.

tylersmayhem, how true.

regularbrowse2:22 pm 23 May 08

House prices are falling in US and bank foreclosure rates are climbing too. No doubt it will happen here. That means house prices will stagnate or drop in some ACT suburbs. About time too as most people are getting priced out of the market. The $450,000 price tags for selling might be good for the down-sizing baby boomers but it harms the following generations who buy.

Be warned: A bust always comes after a boom.

tylersmayhem1:39 pm 23 May 08

Please read my last comment again:

What I’m saying is houses that used to be reasonably priced at $250K are now between 450 – 500K.

VYBerlinaV8_the_one_they_all_copy1:34 pm 23 May 08

So by admitting that such places exist, what you’re really saying is that you can’t buy what you want right now?

The property in the link above is fine for a first home. I lived in a smaller place than that (further from services too) when I started out less than 10 years ago.

You have to start somewhere – what’s wrong with purchasing something like this, doing some basic tidy up, then either selling it or renting it out (with subsequent equity redraw) to get into your next place 5-8 years down the track?

tylersmayhem1:23 pm 23 May 08

Do you mean one like this Thumper (http://www.allhomes.com.au/ah/ah0073?slid=-228944812) Sweet!

Home sweet home – all my dreams are coming true! I’m keen to see the other beauties you are referring to around that price too, oh except maybe a 2 bedroom town house on a 300 square block. Nothing wrong with these properties, expect that they’re going for around $320K in many suburbs.

What I’m saying is houses that used to be reasonably priced at $250K are now between 450 – 500K.

VYBerlinaV8_the_one_they_all_copy1:21 pm 23 May 08

Either that or buy a place as an investment property and rent it for a few years. Claim the stamp duty and use the rent to pay the mortgage. Then, when you have some equity built, go buy the house you want.

VYBerlinaV8_the_one_they_all_copy12:58 pm 23 May 08

I have to disagree with you VYBerlinaV8. I think that’s a really s**t thing to do. While us as buyers need to take back control, we need to have morals, and that suggested method could also be damaging us as buyers. We start doing that, vendors will loose confidence in the buyers, re-neg from their side, and/or demand longer settlement periods etc etc. It needs balance, not either side having the upper hand.

Who do you think is really doing the manipulation here? Market inefficies that lead to rapidly changing prices (ie drop 30-40k in 2 weeks) are related to real estate agents playing silly buggers (ie telling different stories to buyers and sellers regarding price). If you can say to a real estate agent “this is the offer, I’m putting in others, but I’m looking at others, so get your client to make a decision”, you will have better results. Ultimately, sellers will sell according to their necessity and desire, and buyers behave the same. If you don’t send clear messages and maximise your chance of success, you will almost certainly pay more than you need to.

Its about as silly as Nelson’s fuel tax cut of 5c/L. Whether you cut the tax or not the market determines what its worth and so by cutting the tax you just put the money that would have been in the public purse back to the vendor’s or ExxonMobil’s pocket.

tylersmayhem said :

We are the ones now driving up housing prices. finally we’re seeing propertys listed and inflated prices, and just sitting there for a few weeks, then the price drop by 20-30K. That’s 20-30K saved by patient first home buyers.

Precisely. I looked at the housing market a couple of months ago and couldn’t find evidence of any real shortage of houses in general – affordability was a different issue though. Housing prices are set at what people are willing to pay. Low interest rates and easy finance have seen people willing to pay premium prices because they can. Its no coincidence that the housing price boom in Canberra coincided with the increase in popularity of auctions (particularly by real estate agents). Increasing the supply won’t have much beneficial effect.

tylersmayhem11:53 am 23 May 08

I have to disagree with you VYBerlinaV8. I think that’s a really s**t thing to do. While us as buyers need to take back control, we need to have morals, and that suggested method could also be damaging us as buyers. We start doing that, vendors will loose confidence in the buyers, re-neg from their side, and/or demand longer settlement periods etc etc. It needs balance, not either side having the upper hand.

VYBerlinaV8_the_one_they_all_copy11:40 am 23 May 08

So offer what you think the place is worth, and tell the agent your offer is open for a couple of weeks. It’s just saying, not legally binding. Put in several such offers, and close on the first one to come through. If others come through later just say ‘sorry found something else’…

tylersmayhem11:30 am 23 May 08

As a first home buyer, how worrying it is to think that my first home will be close to the half mil mark. What’s happened to Canberra?! My suggestion is that the buyers market in our situation need to stop panicking and rushing out and buying the first home they see at an inflated price! We need to start demanding decent quality and a decent price. I’m seeing this starting to happen, and we need to keep it up. Vendors have been taking the piis for years now and it has to stop. The buyers are the only ones who can start to control this situation. We are the ones now driving up housing prices. finally we’re seeing propertys listed and inflated prices, and just sitting there for a few weeks, then the price drop by 20-30K. That’s 20-30K saved by patient first home buyers.

I was shocked when looking at a property the other week and it was a VERY ordinary 3 bedroom place on an OK sized block in Kambah (a main street property at that). The vendor hadn’t even bothered to finish laying the carpet in the bedrooms and just leaving the cut underlay, and I overheard the agent making the excuse “unfortunately the vendor had to go fishing for the weekend, but he’s getting around to it next weekend”. WTF?! Surely even the agent could have come up with a more professional excuse than that! This place was priced at around $380,000, and the vendors don’t even need to bother making the place crisp. Buyers like me also see through the “rustic funky style kitchen” as exactly what it really is: a s**thole of a kitchen that completely needs replacing.

VYBerlinaV8_the_one_they_all_copy11:19 am 23 May 08

Anything that isn’t a supply side solution will put upward pressure on prices. It’s quite simple, really.

Stupid wordpress didnt like my less than and greater than signs! My post is meaningless now.

And the problem is??

First home buyers in the 500K market dont care, neutral.
Sellers in the 500K market dont care, neutral.

With smoke and mirrors, you really can have a Win-Win for all.

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