The $7k First Home Buyers Grant finishes in Qld at midnight tonight, to be replaced by a $15k first home owners construction grant. This is to boost the construction sector apparently as opposed to boosting profits of vendors.
Qld Treasurer Tim Nichol was on radio this morning saying that he believed all the $7k FHOG did over the past 12 years since 2000 when it was first implemented, was add $7k to the purchase price of a house. He believes vendors were increasing the price of their homes by $7k when they put it onto the market, as they were aware of the grant, so now he obviously believes that by removing the existing FHOG that existing house prices may fall by $7k!
If this is what he thinks, I am sorry but he needs a reality check...the valuation of the property by the lender would reveal any abnormalities or inflated pricing I am sure! The $7k was usually used as a deposit with a lender, they took the $7k plus any savings the borrower had to form a minimum 5% deposit to give a 95% LVR. Though since around 2008 lenders wanted a max 85% to 90% LVR. A First Home Buyer was always hard pressed to build as many lenders wouldn't lend beyond 80% total LVR being it was considered more risky than to lend on an existing dwelling.
In my opinion, as far as home prices crashing,there will always be room for the top end of the market to fall as they are I believe mainly "emotional" purchases, not rational. No one "needs" to have 10 bedrooms and 12 bathrooms along with a 5000 bottle wine cellar and an olympic sized swimming pool. There are plenty of properties to be had that have appeal and location with out the big price tag, and that is where many buyers are heading. Middle of the road property, $500k to $1 million will always be relatively stable imo, price competition will always be there, as will always be those that will pay more to secure the property they want.
When a market falls 30%, the majority of the hit is at the big end of town, the basic 3 x 2 - 20k's out of the city still sits on land worth $200k to replace and the structure still cost $125k to replace. We do not have streets of empty homes such as was seen in many cities in the USA to pull back prices.
The only way we would see real falls in house values, is when Local Governments forgo the massive head costs imposed on developers. Currently in Qld the "Head" costs for a block of land payable to Local Government equate to around 50% of the land sale value. If one does the sums it isn't a very attractive proposition to buy, zone, then develop a new residential estate, taking up to 2 year to recoup the money while paying interest, hence pricing will hold.
Councils are also continually increasing the rateable value of existing residential and commercial land to increase their rates take. Occasionally a vacant block of land will sell for less than it's "rateable" value but not often. When the rateable value is added to the replacment costs of a building, that will be close to it's basic value providing there are no negatives...such as going underwater in 1974 and 2011 in Brisbane.
Besides some larger estates being developed to the south and north of Brisbane to appeal to first home buyers with "affordable" land around $200k, we are now seeing many small pockets of land within 15kms of the city that can accept up to maybe 30 home sites being developed and sold off. These "boutique" home sites are selling anywhere between $280k and $350k depending on size. By the time a new reasonable 4 x 2 with some extras is built the replacement value is pushing $750k.
