11/03/2009 - 22:00

June too early to cut grant: UDIA

11/03/2009 - 22:00

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NEW research by the Urban Development Institute of Australia WA suggests the federal government's first home owner grant (FHOG) needs to remain in place for 18 months in order to effectively stimulate the market for the long term.

June too early to cut grant: UDIA

NEW research by the Urban Development Institute of Australia WA suggests the federal government's first home owner grant (FHOG) needs to remain in place for 18 months in order to effectively stimulate the market for the long term.

UDIA WA said it had analysed the effect of the previous FHOG boost in 2001 in reaching its conclusion that the eight and a half months the current boost is scheduled to run, cutting off at June 30, was not long enough to be effective.

UDIA WA chief executive Debra Goostrey said the boost should continue until at least December 2009 and then, if conditions were right, should be reduced in increments over the following six months.

"First home buyers are integral to the continued health of the property market at all levels and the FHOG boost stimulates first home buyers to purchase. This in turn stimulates the wider market and improves consumer confidence," she said.

"At the moment, first home buyers are a large percentage of the market, and the boost needs to continue until the rest of the market normalises."

First home owners currently make up about 27 per cent of the market, above the traditional 17-18 per cent.

According to UDIA research, the government's first FHOG boost in March 2001 ran for 14.5 months, with the last six months at a reduced rate, providing enough time for the property market to normalise and for the middle market to recover.

Ms Goostrey said the market was more subdued in 2008 when the boost was introduced, compared to 2000, and therefore may need even longer to recover.

Lot sales data from UDIA's weekly survey of 12 major developers show a marked increase in sales following the grant boost in mid-October.

Lot sales have averaged about 130 a week since that time, excluding the traditionally quieter Christmas and New Year period, almost double the average in the months before the FHOG's implementation.

Sales have gathered pace since the beginning of February, peaking in the week of February 20 with 209 lot sales.

The Australian Finance Group February mortgage index also shows first home buyers are rushing to meet the grant deadline.

The number of mortgages sold in WA for the month rose 25 per cent on the previous month to 1,417, but was slightly lower than the February 2008 result of 1,483.

The average loan size for the month was $385,000, with first home buyers making up 25 per cent of total mortgages sold in WA.

"It's positive in that it underpins the future recovery of mid-level property markets by getting significant numbers of people onto the property ladder," AFG general manager sales and operations, Mark Hewitt, said.

"But we're concerned that if the government doesn't announce an extension to the grants fairly soon, we'll continue to pull demand forward and will be left staring over a cliff come the end of June."

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