First-home buyers may be receiving generous grants and stamp duty concessions but, writes Paul Coombes, there's no such thing as a free lunch.

It's a heady time for residential property buyers, with prices romping ahead and pressures on builders to reap first-home buyers grants and soften GST imposts on all.

Conditions will continue to be tough for first-home buyers, regardless of whether they are buying new or used homes.

The Federal Government's first-home buyers grant $7,000, and $14,000 if the home is new isn't means-tested, nor are property prices. To qualify for a grant, the purchase must be the first home of all applicants individuals and couples. Applications for government grants must be lodged by December 31.

Also, if you want to build a new home, you must line up a builder prepared to start by March and that's not easy. Many builders you'd want to trust your money to are flat out.

The grant has distorted the market, with builders barely coping with the demand it has generated.

Also, first-home buyers are under a lot of pressure to select locations and builders that are affordable.

The grab for grants has flowed to new and old properties. Buying power was used for everything from studio apartments to new and old suburban homes, pushing prices up in its path.

Consumers spending more, attractive lower interest rates and State Government stamp duty concessions are the icing on the buying cake (see box).

To qualify for maximum stamp duty concessions, first-home buyers must:

Not spend more than $200,000 on a city home or $175,000 for a country home. Exemptions on city land start cutting out after $95,000 and stop at $140,000. Exemptions for country land start cutting out at $80,000 and stop at $110,000.

Not borrow more than the value of the property.

Incomes are no longer means tested. Building lobby groups such as the Master Builders Association and the Housing Industry Association are pushing for grant extensions. The Federal Government hasn't buckled, but we're in election mode so the future is guesswork. Regardless of politics, play safe and lodge applications before the due date.

Meanwhile, the GST appears to be a movable feast for the building industry. Although all valid contracts must show GST, some builders particularly project and off-the-plan sellers are giving construction price concessions, reducing buyer pain.

This is to improve sales, as well as help new owners cope with GST on furnishings needed to make homes habitable, for example.

Second-hand properties attract no GST, leading to a debate among buyers on whether it is cheaper to buy or build. You have to calculate what the additional $7,000 is worth for new property with GST everything plus 10 per cent.

Don't forget to include other basic costs. The average price for a valuation is $300 to $500; an inspection $300 to $500; a loan application $0 to $700; and legal costs $1,000 plus.

But, you're not out of the costs jungle yet. You pay stamp duty on mortgage documents $5 for the first $16,000 borrowed and $4 for each $1,000 thereafter.

Company-titled property loans are usually granted only up to 75 per cent of valuation.

Lenders' mortgage insurance protection is another associated cost of buying a home. If you borrow between 80 to 94 per cent of the purchase price, premiums are usually 0.4 per cent based on the loan to valuation ratio (LVR).

If you are borrowing more than 95 per cent, the premium is 1.5 per cent of borrowed funds. vOther insurances include home, contents and public liability, and start at $400 a year. Moving costs start at $1,000 for a professional company.

Stamp duty - how they work

In country areas, housing stamp duty is payable on properties valued at more than $175,000 - it's $200,000 for the metropolitan area. Exemptions stop in the country at $249,999 and in the city at $300,000. The exemptions formulae for the metropolitan area:

Country land duties are: from $80,000 to $110,000 - 7.8 per cent of purchase price minus $6,240.

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