NSW Government to join Federal in encouraging young first home owners to take on large debts.

On the 14th of last month we reported that the Australian Government announced increased grants to encourage people to take on more excessive debt. The Federal Government increased the FHOG to $14,000 for first home owner buying established dwellings and to $21,000 for first home owners that were building.

The Federal Government’s excuse for the grants trying to keep the housing bubble afloat and encourage more Australian’s into huge debts at the top of the biggest housing bubble on record was to stimulate the house building market which has already been savaged, but has far worse to come.

Mirvac, the biggest house builder in NSW slashed it’s earnings estimate this week by almost 50% after poor sales of its residential dwellings. This comes after it axed 160 jobs. Dwelling approvals in NSW fell 26.2% in September to a 43 year low.

We believe if the Federal government genuinely wants to simulate building, then the grants should have only gone to first home buyers building new dwellings.

With plunging house sales and dwindling prices in NSW, the NSW Government today announced it will throw in another $3,000 to first home owners building new dwellings under $750,000, effective next Tuesday. While this is better than the Federal Government’s increased grants across the board, it’s hard to see what $3,000 will do in a market with falling prices. Quite possibly that $3,000 will evaporate in less than a month.

But is the governments really concerned so much about construction workers? Why not prop up the ailing automotive or retails sectors as well? Why is there such a vested interest in Housing?

The answer may be in the NSW’s mini budget. NSW had a projected surplus in the June budget of $268 million. However in the mini budget to be reviled on Tuesday, it will show a deficit of between $900 million and $1 billion. This will be the first deficit since 1997 and the biggest since 1992.

So how can this position change so fast? NSW Treasurer Eric Roozendaal said “The impact (of the global economic slowdown) on us is huge, in terms of a reduction in revenue from duties generated by land transfers”. It’s been reported stamp duty receipts were down by $270 million alone in the first three months of this financial year.

Looks like NSW Government income is as safe as houses.

» $24,000 for first home buyers – The Sydney Morning Herald, 8th November 2008.
» Mirvac halves its earnings estimate – The Age, 6th November 2008.

1 Comment

  1. NSW house prices aren’t falling like they are in some other states, we’ve beaten everyone else to it and been in a mini recession for a few years already. The building sector in NSW is in terrible shape and this extra first home owners grant by the NSW government is certainly a good move. I’m a mortgage broker and we got quite a few phone calls from first home buyers looking to build new homes in the next few days after the announcement. Too early to tell for sure, but I’m cautiously optimistic that this move will help the NSW economy.

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