It was announced at the end of May 2012 that stamp duty would be either lowered or removed for apartments bought off the plan in the Adelaide CBD and North Adelaide. After the recent South Australian budget was handed down, this incentive looks set to continue.

This is a two-year trial where stamp duty will be abolished for people who buy an apartment off the plan for under $500,000. Properties over $500,000 will get a capped concession.

Initially, I thought that it was about time more significant efforts were made, rather than a couple hundred dollars off council rates or the measly $1500 stamp duty rebate that was in place before the new rebate. Under this new measure,  a first homebuyer can save more than $30,000 with other bonuses factored in. This seems good on paper but the reality is not as it seems.

The main issue is not necessarily the price of the apartment, or the added costs of buying. Councils or governments can offer significant cash back towards the purchase price but this still won’t make a difference to the market.

The toughest hurdle to CBD living is the lenders.

Most banks and financial institutions still have a policy of lending no more than 80% of the valuation, not the purchase price, and in many cases they won’t lend more than 60%.

This means that even with the new stamp duty concessions, someone wanting to buy a $500,000 apartment will need to cough up $100,000 in cash. Of course this can be raised through other equity, but when we talk first or second homebuyers this is a heavy ask.

The problem worsens when the first homebuyer tries to buy into a more conservative price point of, say, $350,000. Most new, off the plan apartments at this price will often fall under the 50 square metre threshold banks use before they drop their lending ratio to 60%. This means that the first homebuyer will need $140,000 in cash. In the past, parents had often put up the cash component using equity in their own home or other assets. However, in the current climate, this is not as common as it once was.

A trend is also emerging of developers building smaller apartments due to construction costs and yield on the site. For under $300,000 you’ll be lucky to buy a one-bedroom studio style apartment at around 30 square metres.

A comfortable size for a single bedroom unit will hover around 40-50 square metres and the problem intensifies when banks only lend on a minimum size of 50 square metres. This means that most affordable apartments will fall below this threshold.

At best, a bank will lend up to 60% of the value of an apartment under 50 square metres. Wiving stamp duty won’t help much here. The number of willing first homeowners and investors who have been turned away as a result is disappointing.

Lastly I would like to point out the increased fees of owning an apartment or community titled property. While $300-$400 per quarter for body corporate fees was once considered a reasonable amount to pay, the norm is now more than $600 per quarter for a single bedroom apartment. Add to this council rates and land tax and the purchase suddenly feels less attractive.

Either the banks need to move into the 21st century and realise apartment living is here to stay and is becoming more desirable, or government intervention is needed to help bridge the lending ration gap. This will make apartment buying and selling more liquid, with lower barriers to entry.

The stamp duty concession is a great initiative from the State Government, but I think they might have fired at the wrong target.

Nick Ploubidis is Principal of the Professionals Norwood