Profit and loss

Sydney Morning Herald

Saturday June 27, 2009

Susan Wellings

The stamp duty cut has clear winners and losers but who stands to benefit the most? When the NSW Government announced last week that stamp duty would be halved for new properties up to the value of $600,000, there were both cheers and tears from buyers. The concession will mean savings of up to $11,245."We were just about to sign our contract when we heard," said bank worker George Nikolov, 41, who had been negotiating for a house-and-land package at a new estate in Minto, in Sydney's south-west. "Now we'll hold off until it comes into effect on July 1. In this kind of economy, every dollar counts."But the atmosphere was starkly different in the office of another buyer's solicitor in the west. "We've just exchanged on a new house and been told we're going to miss out," said one second-time owner, who asked not to be named. "It's so unfair. We can't break the contract now to take advantage of this. Why was no one given a warning this could be in the pipeline?"Of course, the Government can't hope to please everyone with its scheme to stimulate demand for new housing beyond the narrow foundation of first-home buyers but there are still definite winners and losers. The only question is: who stands to benefit the most?New-house upgradersMost of the houses that will fall under the Government's $64 million stimulus measure are in new estates in Sydney's west, south-west, south and north-west, where land isn't so expensive, keeping the purchase price for the new dwelling under the $600,000 limit.But extending housing incentives beyond first-home buyers with their $7000 grant and buyer's supplement of $3000 for new homes from the NSW Government, their federal boost of $14,000 for new homes and $7000 for existing homes and the cut to stamp duty by up to $17,999 is a big step.It will provide a sizeable saving, particularly at a time when demand for an upgrader's existing home might be high from first-home buyers and the price driven up as a result."Second and third potential home buyers are the biggest market, almost three times the number of first-home buyers," says Landcom's general manager of corporate marketing, Robert Sullivan, referring to the latest Australian Bureau of Statistics figures that put trade-up buyers at 13,334 a month for NSW 52.7 per cent of the market compared with 5551 first-home buyers 21.9 per cent of the market a figure that is historically much lower."It's very hard to get that part of the market out of established houses, so this is a good incentive. To take advantage of it, we'll be offering really good deals in the next months, with discounts, rebates and maybe offers of landscaping and we'll package sales of houses and land to make it easy for the customer to maximise the stamp duty cut."Those second-, third- and fourth-home buyers wanting to upgrade to a new house often have more ready access to finance, too. "It's great to generate demand from that sector, particularly as first-home buyers are currently having problems getting loans," says the sales manager at Monarch Investments, Andrew Toynton.New-house downsizersJust like upgraders, downsizers are also going to be big winners from the deal. Leaving existing homes and moving into smaller or cheaper new properties will often give them access to the latest facilities at many estates."Our estates have things like lap pools and other community facilities," Toynton says of estates such as the south-west's Macquarie Links and Ingleburn Gardens, where prices range from $379,000 to $495,000, attracting a stamp duty saving of about $8000. "There's a convenience store, double garaging for everyone, a state-of-the-art kindy ... and aged-care facilities."New houses really do suit empty-nesters, says AV Jennings' NSW sales and marketing manager, Tracey Menser. "In this sector of the market, it's all about them and looking after themselves," she says. "They want a nice big bedroom with a good ensuite, they love entertaining and they want large outdoor areas."InvestorsWith prices still depressed, interest rates low and rents high, the investor could prove to be the biggest winner from the initiative. A Monarch home for $395,000 can fetch, on average, $450 a week in rent, Toynton says.Investors comprise 25.3 per cent of the housing market, according to ABS figures, with 6405 in NSW. With investors starting to come back into the market, the stamp duty bonus should really help."The charges in NSW on housing are higher than in any other state, apart from in one instance," says senior economist with the Housing Industry Association, Ben Phillips (see table for stamp duty figures). "There's stamp duty, GST and infrastructure charges, which can all add up to more than $50,000. Someone has to pay those and even if it's the developer, those costs are eventually passed on to the purchaser. So this could help everyone."Investors are still down from 31 per cent of the housing finance commitments in March last year. But yields are the highest since 2002 and there's plenty of rental demand. The first-home buyer grants have led to increasing prices because of a shortage of supply of the kind of houses that fall into their price range, says RP Data senior research analyst Cameron Kusher. An HIA survey recently showed total sales of new homes rose 0.5 per cent, seasonally adjusted, in April up 22 per cent on their low point in December."That means prices generally may recover and give everyone, particularly investors, more confidence, especially with the sharemarket up and the Australian dollar doing better. Housing, after all, is our biggest asset class, accounting for $3 trillion and with about 70 per cent of the population owning properties."Holiday home buyersThere are now more and more new estates being built along the coast, both north and south of Sydney, and for people planning to buy a holiday home, the stamp duty bonus will put an extra sheen on their plans.Stockland has its new residential development of Murrays Beach, for instance, on the shores of Lake Macquarie, and Bayswood in Shoalhaven, while AV Jennings has recently extended its market further down the South Coast and up as far as Port Macquarie on the Mid-North Coast. "A lot of people have bought land and are waiting for their houses to sell in Sydney so they can afford a good new house," Menser says. "It means they can buy a new house at the coast and maybe a smaller home in Sydney."Established homes or sitesFor those second-home buyers or investors who prefer established homes over new, this package offers no benefits. There are many such people and often it can make good financial sense to buy old rather than new, even without the stamp duty benefit, believes the manager of Gilmour & Orley real estate agency in Kellyville, Anthony Orley."Buying something brand new rather than something that's been lived in before doesn't always mean a financial advantage," he says. "With a new house, you often have to pay to finish things off yourself."For instance, there are often no flyscreens or window furnishings, or there might be cheap venetians or vertical blinds that you'll want to change and while air-conditioning vents will be in, the units might not be there."With brand new, you can get exactly what you want but with an older home, most things you'll need will be there already."Unfortunately, people who plan to knock down and rebuild also lose out on the stamp duty cut, which applies only to new land.New apartment buyersThe cut in stamp duty applies to the current stock of apartments that have never been occupied, as well as off-the-plan purchases up to a value of $600,000. Buyers must apply for the discount before the end of the year but off-the-plan apartments needn't be completed until June 30, 2011 (see Domain Apartments).Surprise: developers win!With predictions that the demand for new houses will rise as a result of the stamp duty measure, developers are set to be one of the biggest winners. ABS figures released last week revealed that in the three months to March, fewer homes were built in NSW than any other quarter in recorded history 5400 compared with 7500 a year ago but the chief executive of developers' body the Urban Taskforce, Aaron Gadiel, says the budget move could be the industry's saviour."This action was clearly essential," he says."A further fall in home construction levels couldn't be tolerated by any government."SECOND TIME LUCKY WITH TAX-CUT WINDFALLJust as he was about to buy his first home, the government brought in the cuts to stamp duty for first-timers. Now, on the verge of buying his second new house, Michael Olek was delighted with the news that stamp duty will be slashed for this one, too."You're paying out a lot of money to government with every house you buy, so it's only right that they give you a little back," says Olek, 27. "Every little helps."Olek, who works in industrial property, and his wife, flight attendant Alexandra, also 27, are currently living with his brother in Campbelltown after selling their first home, an apartment in Pyrmont. Now they're eager to move into their new house, a $395,000 four-bedroom terrace at Monarch's Ingleburn Gardens but are happy to wait until after July 1 to sign. "I'm very keen to get into the house and I'm sure my brother and sister-in-law are just as keen to see us go," Olek says. "It's going to feel huge, and we love the design. The extra money we save will help us pay for the more luxury fittings we wanted."