BUYERS seeking the $7000 first home owners grant will be able to buy homes worth up to $835,000 from January 1.
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Because home prices have risen across the state, the cap will rise from the present $750,000.
The cap is reviewed annually.
The NSW Treasurer, Eric Roozendaal, said first home buyers were also eligible for stamp duty savings worth up to $17,990, while those who built their own homes were eligible for total savings of up to $29,490 under the NSW home builder's bonus, which was included in this year's state budget.
Aaron Gadiel, the chief executive of the Urban Taskforce, a developers lobby group, said: "Eligibility for the first home owners grant has widened because the housing undersupply has made all homes more expensive than they need to be.
"Logically the zero stamp duty initiative - the NSW home builder's bonus - should also have been adjusted at the same time." Since July 1, stamp duty has not been payable when buying an off-the-plan home worth up to $600,000, and stamp duty was cut 25 per cent for those who buy once construction starts or a home is newly completed.
Also when people over 65 buy a newly constructed home worth up to $600,000, they are exempt from stamp duty, whether they are buying off the plan or not.
Mr Gadiel said these limits should be raised to $835,000 to bring them into line with the first home buyers grant.
"The abrupt cut-off at $600,000 is distorting housing supply," he said.