HomeBuilder grant: 10-word fatal flaw in government scheme revealed

The HomeBuilder program was slammed by detractors almost as soon as it was announced, with many claiming details in the fine print would end up shafting those who needed it most. Most of the fierce backlash so far has centred on the strict eligibility criteria, which limits the $688 million scheme to Aussies who are building a new home worth less than $750,000.
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The $25,000 cash grants can also be put towards certain renovations worth between $150,000 and $750,000 that will result in the property being priced at $1.5 million or less, and will only be available to singles who earn less than $125,00 a year or $200,000 per couple.
But it turns out one crucial detail most Australians have so far missed could be the one fatal flaw that dooms the entire package to failure.
According to a property insider, the biggest hole in the plan is the strict time frame the government has based it on.
Simon Wilkins, director and senior consultant at Sydney firm Inspired Property Investing, told news.com.au a single 10-word sentence exposed the glaring problem.
“I’ve worked in the property industry for the last six years and there is a massive issue with the HomeBuilder scheme – as they say, the devil is in the detail,” Mr Wilkins said.
“This is the reason why it actually won’t work for almost everyone who applies – it states ‘construction must commence within three months of the contract date’.”
He said the typical time frame involved in organising a new build was a loophole that likely meant many would miss out altogether, and that it was “probably the biggest major flaw in the whole scheme”.
Normally, buyers would purchase a registered block of land and sign a build contract before applying for finance with a lender, as they require a executed build contract and land contract.
But at the moment, banks are taking between three and five weeks just to approve finance, and the buyer will also need to settle on the land, which can take two to three weeks.
Once the land is settled, the builder then orders a number of processes such as soil tests and plans to be submitted to the local council, which can take around four weeks to complete.
It can take “anywhere from three to five weeks for approval on a good day” from councils, with this step taking six weeks for one of Mr Wilkins’ clients.
Once that approval is granted by the council, the builder then needs an Authority to Commence letter from the bank, which could take another week, and the builder will also need another two weeks after receiving that crucial letter to organise things like materials and labourers before they can get on site.
“This whole process – with no hiccups – can take a minimum of 15 weeks or almost four months, but in most cases it is five months,” Mr Wilkins said.
“The time frame just doesn’t work.
“What do you do if you’re relying on the $25,000 as part of your deposit and it runs over the three months?”
“After you sign the contract, there are so many variables before the builders are on site that it is a bit of a nightmare.
“But most of my clients don’t factor that in.
“The issue is the scheme works in principle, but it puts too much reliance on things that are beyond the control of the purchaser.”
Mr Wilkins said he was advising his clients who are eligible for the grant not to count on getting it because of that tough time limit, which he said put pressure on builders, banks and local councils.
However, Mr Wilkins said the problem could be easily fixed, either by doubling the window to six months and requiring the contract is simply signed between now and the end of the year, without construction having to begin.
Mr Wilkins said another downside of the scheme was that it would push people to buy registered land only, which in turn will drive up prices for everyone.
He said in Sydney at least, registered land only made up a tiny slice of the market, and that the scheme would ramp up demand for what little was available.
“There is more unregistered land – that’s just the way the market is at the moment – so this will drive everyone to registered blocks of land and when lots of people want to buy something, prices go up,” he explained.
And on the flip side, those who bought unregistered land would delay their building contracts until it was registered, which would make it difficult for builders to plan their jobs for the months ahead.
“No one will be signing build contracts until their land is registered, which means builders won’t have a pipeline of builds in their systems,” he explained.
“It will only come through once clients sign build contacts, which makes it very hard for builders to forecast the jobs coming in.
“This really need to be addressed urgently as the scheme just won’t work.”
Mr Wilkins said another downside was that the scheme was limited to Australian citizens only, which meant permanent residents missed out.
“There are a lot of permanent residents – we have a lot of clients from India for example who have lived here for ten years, so I don’t know why they are excluded, if you really want to be driving a buying market,” he said.
“That makes it a bit inhibitive as well and what it has done is not broaden the market by getting more people in – it has actually narrowed it down quite a lot.”
However, Mr Wilkins did dismiss one of the other major criticism of the scheme, which was that the $750,000 property value limit would exclude city dwellers.
“We do a lot of builds in the western suburbs and 99 per cent of clients are below the $750,000 mark – you can do a decent build for $250,000 to $300,000 and easily get a block for $400,000 so that point is a bit muted unless you’re building a mansion,” he said.
Despite concerns with the scheme, leading tradie platform hipages has already observed a spike in requests for renovations and home extensions, with homeowners already seeking local trusted tradies for projects that would allow them to take advantage of the $25,000 cash grant.
Job numbers posted in the site’s Renovation category were 4.4 times higher yesterday compared to last Thursday’s job numbers in the same category while the Home Extensions category was 6.5 times higher.
Co-founder and CEO Roby Sharon-Zipser said a likely spike in home renovations would ensue which would help the wider economy.
“We welcome the stringent criteria around the grants, helping to guarantee the viability and longevity of tradie projects, and ensuring they are not put on hold halfway due to homeowners unable to afford the overall costs,” he said.
“We see these grants as helping to boost the construction sector, with the potential to provide a $5.86 billion lift to the wider economy.”