Government Handouts to Homebuyers

The generous stamp duty concession and bonuses to homebuyers recently announced by state governments could boost property prices across Australia by as much as 0.5%, according to a Westpac report.

"The latest round of state budgets included significant stimulus for Australia’s homebuyers in an effort to address the worsening housing affordability,” the report said. “In the past, fiscal initiatives targeting the demand side of housing markets have typically flowed through to higher prices for residential property."

The report noted that the original scheme rolled out in 2000 was priced in six months later, even though at that time the market was very soft.

"Our calculations suggest the fiscal boost for buyers purchasing median priced houses and eligible for maximum concessions (ie, in most cases requiring them to be first homebuyers) is 2.1% in Brisbane, 1.1% in Adelaide, 0.6% in Perth and 0.2% in Melbourne. As such, the total impact on the ABS’ national house price index is around 0.5%."

Westpac is expecting the boosts to come through in the third quarter. Despite this fillip, the bank warned that this shouldn’t be taken as a sign that the market is firming.

"Conditions are unlikely for a revival in 2008. While pent-up demand for dwellings is currently high and should preclude a severe downturn in Australia’s residential property market, we believe it’s not enough on its own to drive a sustained upturn. Instead, we expect housing to remain weak while mortgage interest rates are near 9.5%."