HomeBuilder scheme explained for homebuyers and renovators

In June 2020, the Morrison Government announced a new package that would offer grants of $25,000 to encourage new home builds before the end of the year, in a bid to prop up the pained building industry that had taken a hit during the coronavirus-induced economic downturn.

This scheme, known as HomeBuilder, was later extended until 31 March 2021, although the size of the grant was reduced to $15,000 for contracts completed in the first three months of 2021.

It is just one of a series of measures designed to pump money into the economy, and its initial announcement came just a day after Australia’s first recession since the early 1990s became all but official.

→ Related story: Is Australia emerging from recession?

Data from the Australian Bureau of Statistics revealed that Australia’s gross domestic product (GDP) fell 0.3% in the quarter to March 2020, before slumping by around 7% in the June quarter, meaning Australia experienced its first ‘technical recession‘ since the early 1990s.

And while the economy did recover by 3.3% in the September quarter, the Australian and global economies do not appear to be out of the woods yet, with the economic side-effects of COVID-19 likely to continue for the foreseeable future.

To help combat this downturn, the government turned to the housing construction sector to launch its post-coronavirus stimulus program.

Canstar finance expert Steve Mickenbecker said the HomeBuilder program was targeted to create real jobs, aiming to avoid the risk that the grants would just encourage a transfer of assets and wealth.

“The construction sector is a major employer, and with grants extended to home renovations as well as construction of new dwellings, this program is targeting projects with short lead times to help grow jobs quickly,” Mr Mickenbecker said.

The new proposal came after the Master Builders Association and the Housing Industry Association proposed grants to help boost the construction industry of between $40,000 and $50,000 – higher than the grant of $25,000 that the government initially offered or the $15,000 currently available. The Property Council of Australia proposed a $50,000 grant for buyers of newly built homes and a reprieve from paying stamp duty.

Prime Minister Scott Morrison told 2GB radio prior to the launch of the new scheme that any renovation projects would have to be “substantial”, and the funds would be more focused on large-scale builds.

Applications for eligible owner-occupiers, including those who are buying for the first time, opened from 4 June 2020 and were scheduled to run until 31 December, 2020. In late November, the government adjusted some of the eligibility criteria and extended the program until 31 March, 2021, with contracts signed in the new year to be eligible for a reduced $15,000 grant.

Who is eligible for the HomeBuilder grant?

HomeBuilder applicants have to meet eligibility criteria to successfully receive the grant, including income caps and limits on the value of new home builds, which are likely to exclude more well-to-do buyers from accessing the grants. Renovators would have to meet the same income thresholds, but must also have plans to spend a great deal more than the value of the grant to secure the funding.

In November 2020, the government announced it would update the eligibility criteria to increase the home build value caps in NSW and Victoria for 2021 contracts, and to allow a bigger window of time for construction to commence. Here’s the full list of eligibility criteria in 2021:

• You must be a “natural person”, not a company or trust
• You must be at least 18 years old
• You must be an Australian citizen
• You must meet one of the following two income caps:
  • $125,000 per year for an individual applicant based on your 2018-19 tax return or later; or
  • $200,000 per year for a couple based on both tax returns for 2018-19 or later
• You must enter into a building contract between 1 January 2021 and 31 March 2021 to either:
  • Build a new home as a principal place of residence, where the property value does not exceed:
    • $950,000 in NSW (increased from $750,000 under the scheme’s initial criteria)
    • $850,000 in Victoria (increased from $750,000 under the scheme’s initial criteria)
    • $750,000 in all other states and territories; or
  • Substantially renovate your existing home as a principal place of residence, where the renovation contract is between $150,000 and $750,000, and where the value of your existing property does not exceed $1.5 million before renovation.
• Construction must commence within six months of the contract date (increased from three months under the scheme’s initial criteria).

Owner-builders and people wishing to build a new home or renovate an existing home as an investment property are not eligible for HomeBuilder.

More specifications on renovations

Given the size of spending required on renovations to be eligible for the grant, more modest refits would generally not make the cut. Even full-scale bathroom renovations, for instance, typically cost an average of around $19,500 in Australia, while kitchen renovations, excluding appliances, typically cost around $26,000 on average, well below the $150,000 minimum for renovation contracts to qualify under the scheme.

Leader of the Opposition Anthony Albanese has criticised elements of the scheme, particularly the requirement for renovation contracts to be at least $150,000.

“There aren’t too many Aussie battlers out there who have a lazy $150,000 who will see this announcement today and say, ‘I’m going to go between now and December 31 and sign a contract for a project which is worth more than $150,000’,” Mr Albanese said in a statement to the media at the time the HomeBuilder scheme was announced.

→ Related story: Financing a renovation – Loan, refinance, redraw or out of pocket?

It’s worth noting that the government requires HomeBuilder renovations or building work to be undertaken by a registered or licensed building service contractor, who must be named as a builder on the building licence or permit.

Furthermore, renovation work funded by the grant must be to “improve the accessibility, safety and liveability of the dwelling”, according to Treasury. This means it could not be used to add any of the following, for example:

• Swimming pools
• Tennis courts
• Outdoor spas and saunas
• Sheds or garages that are unconnected to the property

How do eligible applicants apply for the HomeBuilder grant?

To apply for the HomeBuilder grant in 2021 as a first home buyer, a new home builder or someone purchasing a new home or off-the-plan apartment, an applicant will need to enter into a contract by 31 March and have their bank apply on their behalf to the relevant state or territory revenue office by 14 April. The revenue office would then conduct the eligibility checks.

Likewise, an owner-occupier seeking to substantially renovate their home with the grant would need to pay the builder to commence renovation by the deadline and then apply directly to their state or territory revenue office, which would then conduct eligibility checks and approve or deny the application.

In a fact sheet about the program, the Australian Government encouraged would-be HomeBuilder applicants to contact the revenue office in their state or territory for more details about when and how to apply for a grant.

What other home ownership assistance is available to new buyers?

According to the government, HomeBuilder grants will be non-taxable and designed to build on the existing help available for new buyers in states and territories, including:

1. Stamp duty concessions

Stamp duty is a government tax charged when you buy real estate, and is also known as transfer duty. Stamp duty is imposed by state and territory governments and therefore varies from state to state. It can be charged at a flat rate or it can be based on the value of the property. Check with your state or territory government to confirm what laws may apply to your situation, and whether you may be eligible for any concessions or exemptions. In Queensland, for instance, first home owners may receive a concessional (reduced) rate of stamp duty on homes valued up to $550,000.

2. First Home Owner Grant

The First Home Owner Grant (FHOG) is a government scheme that works by providing a one-off payment for eligible first home buyers who purchase or build a residential property to live in. The grant differs in each state and territory and in most places it applies to new homes or home builds only. In NSW, for instance, eligible applicants may qualify for a $10,000 grant under this scheme if the property they’re buying or building has never been lived in before and is worth $750,000 or less. Check with your state or territory government to confirm what laws may apply to your situation, and whether you may be eligible for any concessions or exemptions.

3. First Home Super Saver Scheme

The First Home Super Saver Scheme allows people to save money for their first home within their super fund, which has the benefit of the concessional tax treatment of superannuation, according to the Australian Taxation Office. The scheme allows eligible Australians to make voluntary contributions to their super before and after tax, and then apply to withdraw those contributions and any associated earnings to help buy their first home.

4. First Home Loan Deposit Scheme

For those who have already bought their first home, they may wish to consider other ways to access funds for a renovation instead. Using a home loan redraw facility or topping up your existing home loan may be just a couple of the options worth considering. Be sure to take all interest, fees and repayment amounts into consideration when determining the total cost of borrowing to fund a renovation.