By Steven Cross and Jennifer Duke, Smart Property Investor Magazine

The NSW government is planning to stimulate the property market, announcing plans to extend the First Home Owner Grant by a further two years.

In the state Budget announcement earlier this week, NSW treasurer Mike Baird said the grant, which was due to drop from $15,000 to $10,000 next year, will now be offered until 2016.

AMP Capital’s chief economist and head of investment Shane Oliver, in regards to first home buyers’ effect on the market, told Smart Property Investment that the government often targets first home buyers to kickstart the entire property sector.

“[First home buyers] act in a way that’s priming the pump, getting it going so [the property market] takes on a life of its own,” he said, “which is why governments often target them. They know that if they can get this part of the market moving, they know it can get the rest of it going.”

RP Data’s senior research analyst Cameron Kusher also noted that “Activity by first home buyers can have a flow-on effect right across the market”.

“First home buyers are important to the market because they allow those previous first-time buyers to upgrade their homes,” Mr Kusher said. Essentially, this then also encourages downsizers and other owner occupiers to become active in the market, as demand heats up.

With the current grant changes, Mr Kusher noted that “Government incentives are also trying to drive first-time buyers to new stock. However, this stock is typically more expensive than existing stock, so may act as a disincentive.”

However, according to Mr Baird, the scheme had seen a 60 per cent leap in grants in the first few months of 2013 compared with last year.

“As part of the Building the State package announced in last year’s Budget, the NSW government more than doubled the First Home Owner Grant for new homes costing up to $650,000 to $15,000, and we are already seeing signs of life in the critical housing sector,” Mr Baird said.