HomeBuilder scheme explained for homebuyers and renovators

Eligible Australian owner-occupiers can apply for grants of $25,000 to build new homes or undertake major renovations. Here’s what you need to know.
HomeBuilder scheme explained
The HomeBuilder scheme has launched. Will you be applying? Image source: Spill Photography, Shutterstock.

The Morrison Government has finalised a new package that would offer grants of $25,000 to encourage new home builds, in a bid to prop up the pained building industry that has taken a hit during the coronavirus-induced economic downturn.

Budget 2020 Update (7 October, 2020): An extension to the $680 million HomeBuilder scheme was not included in the October Budget announcement. This means applications for this scheme are still set to come to an end on 31 December, 2020.

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

Data from the Australian Bureau of Statistics, released on Wednesday, 3 June, showed the nation’s gross domestic product (GDP) was down 0.3% in the March quarter. This was the slowest period of growth since September 2009 when Australia was in the midst of the Global Financial Crisis, but is likely just the beginning of the full scope of the COVID-19 economic fallout.

Technically, Australia would need to experience two consecutive quarters where GDP drops to be officially in recession. Shortly following the data release, however, Treasurer Josh Frydenberg conceded Australia was already in a recession, on the basis of expected falls in the June quarter GDP results.

As we settle into the 2020 recession, the government has 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, avoiding 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 has offered. 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, until 31 December 2020.

Who is eligible for the HomeBuilder grant?

HomeBuilder applicants will have to meet eligibility criteria to successfully receive the grant of $25,000, 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. Here’s the full list of eligibility criteria:

  • 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 4 June 2020 and 31 December 2020 to either:
    • Build a new home as a principal place of residence, where the property value does not exceed $750,000; 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
  • Construction must commence within three months of the contract date.

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 new 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.

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 grant 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 and have their bank apply on their behalf to the relevant state or territory revenue office to receive the HomeBuilder grant. 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 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. In Queensland, for instance, first home owners may receive a concessional (reduced) rate of stamp duty on homes valued up to $550,000. 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.

2. First Home Owners Grant

The First Home Owners 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

The First Home Loan Deposit Scheme (FHLDS) is a relatively new government measure, introduced in January. Usually, Australian home buyers have to either save up a deposit of at least 20% of their property’s value, or take out Lender’s Mortgage Insurance. Under this new scheme, the Australian Government partially guarantees 10,000 low-deposit loans for the first half of 2020, for eligible low- and middle-income earners who have saved up a deposit of as little as 5% of a property’s value. Another 10,000 places for the next year of the scheme are set to open up in July.

With dozens of lenders vying for new home loan customers, Canstar’s database shows there are also some incentives on offer for first home buyers as well. However, while sign-up deals can be helpful, generally the biggest difference to the cost of a home loan is the interest rate that the lender charges and other fees that apply.

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.

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