Today is all about the first home owners’ grant, and what you can receive in 2018. A quick history lesson on where it came from, how it’s evolved over time, and what you can apply for in 2018. We also touch on the First Home Super Saver Scheme and stamp duty concessions.
Michelle May – Sydney Buyers Agent
Marcus Roberts – Mortgage Broker
Please note that any views or opinions presented in this podcast are solely those of the speakers, and do not necessarily represent those of any business. These views and opinions are general in nature, and do not take account of your personal objectives, financial situation and needs. Please consider whether it applies in your circumstances and seek professional advice wherever appropriate.
Marcus: Hi, and welcome to the Sydney Property Insider podcast, our weekly podcast series where we talk about all things property in the City of Sydney. Hi Michelle, how are you today?
Michelle: Good. How are you?
Marcus: Yeah, very well, very well. So, today in the news, you mentioned something you saw over the weekend, what was that?
Michelle: Yes, I read about how the City of Sydney has changed its stance on Airbnb, and now favours owners to have a final say as opposed to them having the final say about whether they will allow the strata apartment buildings. Previously, they were considering to make it an exempt development, which would have permitted whole homes, including strata apartments in residential-only zones being leased as holiday rentals. Now they’ve done a turn on that, and are strongly considering that strata committees should be given the power to restrict short-term leasing in their building, as long as there’s strong support. So a minimum of 75% majority of owners would have to vote for it or against it.
Michelle: I think it’s a good idea to do that; giving the power back to the owners of the building. Ultimately, they’re the ones who own it
Marcus: Of course. They’re the ones that are living in on a day-by-day basis. They’re the ones that bought into that asset. So giving some power back to the people that are actually the ones dealing with it on a day-to-day basis certainly makes sense.
Michelle: Absolutely, and given this city obviously invites a lot of tourism year-on-year, you as an owner, now have the power to choose to put up with some of the things that are negatives, but also certainly the positives obviously of earning an extra income as an Airbnb host. I know that I’ve used Airbnb in the past and it’s been great all over the world. So it’s great that people are now … The residents are getting to choose … hopefully getting to choose what they decide to do.
Marcus: Yeah. No, absolutely. That was in the Sydney Morning Herald on Saturday, wasn’t it?
Michelle: Correct. Yes, it was. Yes.
Today we’re talking about First Home Owner’s schemes and how they work in New South Wales, and where it started off, and what that means for you if you’re getting into the market. Now Marcus, I feel like First Home Owner’s assistance has been around for a long time in some shape or form. When did it actually start?
Marcus: It really does feel like it has been around for decades or for a long time, and we’re now coming up to almost 20 years that first home owners have had some level of assistance. Originally, the First Home Owner’s Grant was set up for properties that were completed on or after July 1st 2000. Now, at that time, it was a $7,000 one-off grant, and that was really established to assist first home buyers in purchasing their first home. Now, eligibility was and still is that one of the applicants had to have PR or citizenship, to be over 18 years old, and to not have owned any property in Australia prior to July 2000. It was originally set up, July 1st 2000, our older listeners just might remember, is a very important date. That was the date that GST first came into place, and the grant was really set up to offset the effect of GST on home ownership, which came in on that same day.
GST applied on new properties, and the idea was that the grant gave that final push to assist first home buyers who in years past would not have not had GST to pay on buying that new property that suddenly they needed to on July 1st. Some of the requirements with that scheme were you had to live in the property for at least six of the first 12 months since purchase. And the reason for this was to make it a first home buyer, not a first investment property buyer scheme. Now, a lot of the things that have changed over the last 18 years have been the specific amounts, but broadly speaking, the ideas and certainly the rationale has remained the same. The idea of assistance is to get young people into the property market, and really to help get them that last little push to purchase their first home rather than become property moguls.
Some of the unforeseen consequences in that original First Home Owner’s Grant were that the government was really interested in keeping construction rolling and also helping the majority of first home owners with that final push. But what did occur was some first home buyers were looking at million dollar plus properties, and getting an extra 7,000 through after completion or after settlement of a property, which could have at the time been established and could have been these prestige properties, rather than what the purpose was which is simply for a young couple or a young individual just trying to get into the property market. One of the first changes the government made was they said, “Okay, we’re no longer giving grants to those massive mega mansions,” and they did put caps in place of 750 grand, and then 835,000 as purchase prices in 2010 and 2012 respectively.
So if you’re buying over that, you don’t receive the grant. It was quite simple. It was just a hard cap of 750 and 835 grand.
Michelle: After 2012, was it replaced with something else? What do we have now?
Marcus: It was replaced. Many of the ideas were carried over from the old scheme to the newer scheme, and the First Home Owner’s Grant new home scheme was put in place for first home buyers to build or purchase new homes. That’s really important to understand the distinction here is, not buying existing, this was for buying off the plan or building or construction or buying something as a first occupancy to help the construction industry and help the housing industry continue. Now that $7,000 grant, because we’re looking at new homes, was increased to 15,000 through the end of 2015. And then from January 2016, that was then reduced from 15 to 10,000. Again, new home being classified as a home that’s never been previously occupied or sold as a place of residence. They put a cap in place for that again to stop this from being for people buying a $2 million property.
And that cap was at 600,000 for purchase or $750,000 for a build.
Michelle: How do you apply for this grant?
Marcus: It’s something certainly good to know prior to putting an offer in and saying, “Oh, by the way, I think I can get the First Home Owners!” Application does need to be within 12 months of completion or settlement of your new home. In general, you can lodge the application through your lender, or directly through the Office of State Revenue, New South Wales. In most cases, it’s generally best to do it via your lender, as the grant is generally then available at settlement, or in the case of build, available at first construction draw down. We’ll put a link into the show notes to a copy of the application form. It is fairly straightforward. It’s 23 pages, which seems like a lot. The first 13 pages are really some commentary around eligibility and so forth. So it really shouldn’t take too much time, and again, for free money, if it’s applicable to you, certainly worth doing.
Michelle: Absolutely. Is there anything else you wanted to make a note off?
Marcus: Yeah. Besides the First Home Owner’s Grant for new homes, first home owners do also get concessions on transfer duty. But it’s dependent on what they’re purchasing. New South Wales has had the first new home scheme for some exemptions to transfer duty, but that was then replaced this last year with the First Home Buyer’s Assistance scheme. Now, the First Home Buyer’s Assistance scheme provides stamp duty and concessions and exemptions for people buying their first home, either new or established. So it doesn’t matter whether it’s off the plan, it doesn’t matter whether it’s been there for 20 years. It’s concessions and exemptions for anyone buying their first home. In New South Wales, up to $650,000 purchase price, there’s an exemption on transfer duty. So, you put that into your calculations.
If you’re buying at 640,000, you don’t need to worry about the extra that you would for stamp duty. And then between 650 to 800,000, there is a concession on transfer duty. There are calculators. The OSR has a really good one we can provide in the show notes (OSR Calculator), but over 800,000 … So if you’re buying your first home and you’re looking at a million dollar property, there is no concession for that. The government feels that for your first home, they expect most people are looking somewhere under 800,000. Of course, in Sydney that may be a very small unit, or it may not be in an area that you’re as keen on it as you may be for a higher amount, but it is there to help with most first home buyers.
Michelle: Certainly, property developers are advertising heavily with this factor. Obviously helping first home buyers, doing the right thing and getting extra money to purchase. What are your thoughts on that?
Marcus: One thing that … I know myself. Even I’ve had a number of people ask me about … over the last couple of years is they see a lot of ads on Facebook, or they see a lot Instagram ads, or ads that would come up in their mobile feed that talk about … They’re front property developers talking about, “Buy this property and get free money.” Now, it is an easy marketing tactic to put forward as you’re getting supposedly $10,000 from the government, and many developers then play this card in their marketing towards prospects. I’m certainly not one to turn down free money, but make sure that … as we’ve said before, make sure that the fundamental is still stack up. Is the property still worth the cost? Is there a good track record from the builder? Are you sure that the $10,000 grant hasn’t simply been added to the likely purchase price?
Because the developer knows that if you’re a first time buyer, you are probably getting that if you meet the eligibility criteria.
Michelle: That’s a very, very clear point. That’s a very good point actually. That’s … Just being sold to on the basis of this grant. So make sure that it is actually the property that you’re wanting to buy regardless of that money.
Marcus: Yeah. And ultimately, just don’t purchase purely for the reason of getting a grant. Again, free money is free money, don’t have any qualms about that. However, make sure that the asset that you’re buying is going to help with your overall wealth plan for the future. Also, really understand your eligibility. So, do you have a defector or a spouse that has already received assistance? Make sure that you are eligible for the grant or for the assistance that you’re seeking.
Michelle: If your defacto partner or spouse has received it, you are no longer eligible?
Marcus: Yeah, that’s typically correct. So, really understand, ultimately, understand your eligibility before putting that into your calculations, before putting that towards your initial savings towards that purchase.
Michelle: Are there any other changes or schemes on the horizon for people who are looking to buy?
Marcus: Yeah. It’s something that we’ve mentioned, you and I have mentioned off here, but I’ve yet to actually see anyone looking to utilize this or asking about this just yet. But, perhaps in the past year, the government has established this First Home Super Saver scheme in response to increasing cost pressures for property purchases. For your first home buyers, allowing them to put some of their savings, put some savings into superannuation, given that super, generally, provides a favourable tax treatment in contrast to your wages, which are charged or taxed at a marginal tax rate. Now, again, you need to seek professional financial advice to see if this is relevant for you, but here I guess some of my initial thoughts after reading through the legislation and reading through what’s on offer. You can make concessional contributions up to $15,000 in a year.
Now, concessional contributions for those that don’t know, those are salary sacrifice, those are in addition to what your employer is putting through. You putting in extra money and not taking it as wages, that goes towards your concessional contributions. I think really there’s some things to think about if you’re looking to use Super as a vehicle for general savings. Super was originally set up for your retirement. Retirement might be 15 to 35 years away, but it was really created to help fund your later years once you retire. Generally, Super goes up and down, and is dependent on what you’re invested in. If you put $15,000 in, the value drops through your investments and then you apply for release. Understand what that has done to your superannuation, your overall savings. Super also has fees charges, insurance premiums, etc.
Understand the impact on what you’re putting in, and legislation, as we’ve seen in countless budgets across different governments … Government has this nasty way of using Super almost as their constant tinkering tool. What applies now might not be in place in two years’ time, or in three years’ time, in five years’ time. It really depends on which way the wind is blowing on any given day for the government in power. On top of that, to then get your funds, as I understand it, to get your funds out of Super after putting those in towards your first home, you need to request determination from the Commissioner of Taxation after July 2018. If your Super fund then complies with that determination from the commissioner of taxation, funds are released to the ATO, who then withholds tax of either your marginal tax rate less an offset of 30% or 17% if the commissioner is unable to estimate your marginal tax rate.
It’s not as simple as you take $15,000 out of the fund, you receive $15,000 in your bank account. There is-
Michelle: And you go shopping for a property.
Marcus: Yeah, that’s right. So really look into how that’s calculated, what you’re actually getting out of. If the said … Lastly, the other big point with this is that the Super Saver First Home scheme is there for your first home. It’s not there for trips, it’s not there for boats, it’s not there for a new car and so forth. Given superannuation is for your retirement, understand what happens if you apply to take it out for any other purpose other than buying your first home. Again, get some professional advice around that. But generally, this is here for your first home, it’s not there for any other type of purchase. All in all, to me that sounds like a lot of trouble to use savings that otherwise could have been held in a very simple savings account that is easy to use, easy to use for any other purpose.
It’s not relied on anyone else. You’re not waiting for the Commissioner of Taxation to draw up their own schedule and their own understanding of how it should apply to you, applying to then superannuation fund to release those funds to the ATO. The ATO then taking withholding tax out and sending you the money. Savings account’s much simpler than that. Simply, you have the money in your IMG account or similar. If you go onto internet banking, you can take it out. You’re not reliant on anyone else, and on top of that, we’re taking about $15,000, which really, for a property in Sydney, even if you were using bank money for 95% of the purchase, that’s only a $300,000 purchase. So it’s not getting you … That First Home Super Saver scheme is not getting you $200,000 towards property even if you try using it.
It’s only there for that minor amount. So really think if it’s appropriate for you, or whether just having it in a savings account’s more transparent, easier, quicker, all those good things.
Michelle: Yeah, because it does sound like an enormous amount of trouble for not that much of a gain, from my point of view. But obviously, you need to look into that
Marcus: You need to get your own advice and see if it’s the right thing for you. But again, I haven’t had anyone come to me directly and saying this is something they’d like to use. I really look into what the pros and cons are before using that. But again, that’s just another example of something that’s come up in these past 12 months.
Michelle: But definitely using a good broker who’s across available grants that are available than the options for you would definitely make a big difference between you buying a property or not buying a property in some cases.
Marcus: Absolutely. So understanding not just the assistance that’s available to you from the government or not, but also, then your affordability; what you can afford, what you can replay. Those are all things that a good broker, or a good bank manager, or a good home lender, should be able to do for you. They’re really there for you to be on your side in helping you fund the property that you’re looking to purchase or get you into that first home.
Michelle: Absolutely. Well, I found this really interesting. Thank you Marcus for researching that for us and giving us some more information about help for our first home buyers. I think that’s about us for today. Thank you for that, and I look forward to tackling a new subject next week. Look, I lost my words there.
Marcus: Yeah, again, we’re happy to take more questions for first home buyers, for people looking to use something similar. Also, we’ve got some great guests coming up over the next couple of weeks that we’re really excited about. Again, if you have questions of your own that you’d like us to answer on air, or if you’d like us to answer off-air, please send them through to [email protected] That’s [email protected] and we look forward to speaking with you next week.
Michelle: See you soon.
Marcus: Okay, bye.