Rising Interest rates and government charges

By Ben Butler, Herald Sun

Rising interest rates and government charges could push buyers of new houses into the financial twilight zone, experts warn.

Wakelin Property Advisory's Paul Nugent says a homebuyer who has to sell because they can't meet mortgage bills pumped up by interest-rate rises could find their house is worth less than it cost.

He says new houses sell for 10-15 per cent less than their original price.
"You could wipe out all your equity plus a little bit more in one fell swoop," he says.
Inner-city prices continue to soar based on rising land values, but the opposite applies on the estates in the outer suburbs. There, most of the value of a new property is in the building rather than the land.

Real Estate Institute of Victoria figures show the median price in the outer suburbs is $342,000 against $726,000 in the inner city.
"What the first-home buyer is buying is a big vehicle with a small engine," Nugent says.

He says high interest rates and the rising cost of basic household needs will sting first-home buyers most.
"People are buying because they want to get into the market. They're probably the most vulnerable because they go in with higher borrowings and lower deposits.
"These people are doubly at risk because the cost of petrol and groceries are far higher than they were 18 months ago."

Nugent says up to $80,000 of a typical house-and-land package's $300,000 price is infrastructure charges and other "on-costs".
Housing Industry Association chief economist Harley Dale has a more conservative estimate. He says that on a standard lot in Melbourne, on-costs can add $20,000 to $30,000.

But he agrees that the on-costs have increased disproportionately in the past 10 years.
"There's been an over-reliance on the homebuyer covering that infrastructure cost, whereas previously it was covered by the public purse," he says.

Developers are cutting margins as a result, "because you're trying to get a first-home buyer into a home and you have these add-on costs that have risen disproportionately".
The slim margins appear to be putting a dampener on development.

Figures released by the Australian Bureau of Statistics this week show investment in new housing fell again in December, dropping 3 per cent after a 2 per cent fall in November.
Victorian director of the Urban Developers Institute Tony De Domenico says builders want governments to spend on infrastructure and slash red tape.

It takes about 500 government processes to get a bare block from farmland all the way through to a finished house, he says.
"If that could be cut, even to 250, that would be an enormous help."

He says Premier John Brumby is moving in the right direction.
"He's quite keen on streamlining the planning system to make it cheaper to get land to the market. He's looking at the land supply, and we take our hat off to him for that."

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Rising Interest rates and government charges

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