Are we heading for another government induced mini bubble??

Next week on the 1st of July, the new NSW Home Builders Bonus comes into play which is sure to attract plenty of attention. In a move designed to stimulate the building market, vacant land with a price tag of less than $400,000 as well as off the plan property up to a value of $600,000 will be stamp duty exempt. There is also a specific incentive for the seniors market where a new home can be stamp duty exempt with a value of up to $600,000. Of course you will need to read the fine print for all conditions.

But will this approach actually result in more stock coming onto the market than was going to anyway or will it simply create an inflationary bubble in this sector of the market similar to that created by the First Home Buyers Grant and the changes to the FIRB rules. If it follows the path of the FHBG and the FIRB approach then watch the prices rise!

If you look at the way it’s structured the major winners will be the developers as they say a big thank you for their inflated return on investment. It could even be the case that many of the off the plan property won’t even be worth its selling price come settlement time if the bubble bursts.

Time will tell but I fear that this is another knee jerk reaction rather than a quality strategy to a long standing problem. If the government, both state and federal, want to raise some revenue in order to retire debt and build desperately needed infrastructure then they would be better off reducing stamp duty and construction taxes on projects that are truly new. In this case the majority of major developments that will be recipients of these incentives within the bonus timeframe will have already been planned, approved and costed which is hardly going to dramatically increase the housing stock.