Last month the federal government announced yet another lifeline to the tune of $688million to stimulate our economy as a result of the ongoing damage COVID19 is causing to our economy. A $25k cash grant is a reasonable handout for anyone building their new home or substantially renovating their existing home. The grant is designed to stimulate jobs for the trades and the construction industry. The question is, will this new government initiative benefit you or is it a trap for some? Here are my thoughts…

First of all, you need to ascertain if you qualify for the grant – here’s the criteria:

  • You are a natural person (i.e. not a company or trust)
  • You are aged 18 years or older
  • You are an Australian citizen
  • You meet one of the following two income caps:
    • $125k pa for an individual applicant based on your FY19 tax return (or later), or
    • $200k pa for a couple based on both FY19 tax returns (or later)
  • You enter into a building contract between 4th June 2020 (the announcement date) and 31 December 2020, to either:
    • build a new home as your PPOR, or
    • substantially renovate your existing home as your PPOR, where the renovation contract is between $150k and $750k, and where the value of your existing property does not exceed $1.5million
  • Construction must commence within 6 months of the contract date (extended from the original commencement criteria of 3 months – in light of Stage 4 restrictions in Melbourne and Stage 3 restrictions in regional Victoria

It should also be noted that the grant cannot be used for investment properties, or for pools, tennis courts, spas and saunas, detached sheds or garages, and is not available for owner-builders – as the grant is designed to create and support jobs for the trades.

Good news for some…

The great news is that if you have already bought the land and are in the process of signing a building contract to build, then this is just a free kick at the expense of taxpayers money. If this is you, you’re entitled to it so you should absolutely grab it with both arms – assuming you meet the criteria listed above.

We have several clients in this exact position, and this has come at the perfect time for them – which is a bonus..!!

Not so good news for others…

The main issue I see with this new initiative is timing, which is where I see the possible trap if building a new home or undertaking a major renovation wasn’t on the cards for you.

This new scheme lacks adequate time to achieve it’s stated objectives, in my opinion.

Having personally developed several sites myself, I speak from experience when I say that building and/or (major) renovating is an extremely slow and painful process. Councils – for one – move at a snail pace.

Timing is likely to be an issue for you, given that you only have until 31 December 2020 to enter into a building contract – that’s only 5 months away given that everything stops from Christmas eve.

The process to build a new home takes time. Even if you were to buy a block tomorrow (assuming it’s already titled), there is a lengthy process from drawing up plans, putting together an application for a building permit, playing the waiting game with council, going back and forth with council (highly likely), then tendering the job to builders, and signing a building contract.

If you were planning a renovation on your existing home, given that the minimum build contract has to be a minimum of $150k, this suggests to me that it will be more of a large scale renovation requiring you to obtain a permit, as opposed to a minor renovation such as a cosmetic face lift to the bathroom or kitchen. Again, timing is the essence.

The clock is ticking and you have 5 months remaining between now and Christmas eve to sign a building contract.

Something to keep in mind…

Don’t rush and make a foolish purchase just to qualify for the $25k handout. Buying the wrong block out of desperation may cost you a lot more than $25k in the long run.

Also, don’t rush and engage just any builder without proper due diligence as this may also prove to be a costly mistake.

I’ve seen these mistakes many times in my daily work – it’s costly..!!

Proceed with care and with caution. If you had planned to build a new home and/or pursue a major renovation, and this fits in with your bigger picture, then proceed with proper due diligence and with care. If you make the cut and receive $25k in the process, then bonus.

Lastly, be sure to have the right consultants and the right advisors in your corner. I speak from personal experience when I say that building and/or major renovating comes with many challenges and as the saying goes, you don’t know what you don’t know… until you know it.

Good luck and if we can assist you with financing your new build or renovation, now or in the future, please feel free to reach out as we have depth of experience and know-how to ensure your finance runs smoothly.

The Information is general in nature and does not take into account your particular investment objectives or financial situation. It does not constitute, and should not be relied on as, financial or investment advice or recommendations (expressed or implied) and is not an invitation to take up securities or other financial products or services. No decision should be made on the basis of the information without first seeking expert financial advice. Your full financial needs and requirements would need to be assessed prior to any offer or acceptance of a loan product. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.