Getting a foothold on the property ladder has never been harder for young home buyers around the country, but some Gen Ys are nabbing first and second homes through persistence, creative thinking and a willingness to jump in early.
Gen Ys preparing to enter the home market will tell you that scraping together a deposit is the biggest hurdle in buying your first home.
But buyers, like events organiser Clare Downes, reckon building the requisite nest egg is only half the battle. Managing to secure a home at auction is even harder.
Ms Downes, 28, looked for 18 months before landing an unrenovated Bondi Beach apartment before it went to auction, with a first and best offer.
The three-bedroom apartment in a 1930s Art Deco building was the third home she thought she had a shot at buying.
But after missing out at auction on two homes before, she was determined not to let the property on Bondi’s slopes slip from grasp.
‘I thought that I might have a chance, but you never know until you get it. I’ve lost out at auction before, and I thought making the offer before auction might work better,’ she said.
The agent had given Ms Downes a range of what the vendors were prepared to accept. Ms Downes then went in with an offer that was ‘at the higher end’ of the price guide.
The tactic worked.
A little over an hour after the cut-off, she received confirmation she was the new owner.
She has now been in the home for less than a month, and is pleased with the strategy she chose.
‘I think the price I paid was fair,’ she said. ‘I just tried to block out the competition and ask myself ‘What is this place worth to me?’ and that’s how I made the offer. I think it would have gone for a hell of a lot more if it had gone to auction.’
For Ms Downes, the sale was the culmination of an exhausting search in which the price she was prepared to pay at times stretched up to 20 per cent beyond her original budget; but she says the sense of security that comes from having a fixed address of her own is worth the stress.
Well-chosen investment property
Other young home owners will tell you that security is nothing compared to the revenue you can bring in through a well-chosen investment property.
Twenty-nine-year-old project manager Will Churcher* buys property just so he can rent it out.
‘I don’t get why people take out these huge mortgages to buy homes and then live in them, and then call them their biggest assets. Your biggest asset is the one that brings in revenue, so that’s why I prefer to rent [my properties out].’
Mr Churcher rents a share-house with friends, but owns a three-bedroom apartment in Sydney’s Rose Bay and a 60-square-metre commercial site in Edgecliff after six years of property investment that began with a deal he made with his father in 2008.
‘Dad had an investment property that he wanted to sell. He’d had it valued, and I knew that if I spent time renovating it, it could be worth a lot more, he said.’
Mr Churcher persuaded his father to sell him the crumbling two-bedroom apartment in Woollahra at a reduced price, which enabled him to qualify for a first home buyer grant, which at the time was $14,000.
Mr Churcher used the grant money and a small amount of personal savings for renovations, the lion’s share of which he did himself – including demolition to open the ground floor apartment to the garden outside with concertina doors.
After living in the apartment for the compulsory one year of the first home buyer’s grant, Mr Churcher sold the property, and as agreed with his father, was able to keep the difference between the original valuation and the value of the renovated apartment one year on, minus interest.
He tipped the proceeds of the sale into the apartment in Rose Bay which he rents out.
Two years after the Rose Bay purchase, he set up a self-managed superannuation fund through which he bought a commercial suite in Edgecliff that comes with some car spaces.
‘I wanted something that would have longevity. I’ll never live in it, and I’ll never be able to take advantage of capital gains, but commercial property does offer a higher yield and it’s cheaper to buy. I also thought maybe it would be worthwhile to diversify a bit, and not have everything in residential,’ he said.
Negative gearing means the interest on the loan he took to buy the commercial suite is tax deductible, and annual rent increases ensure the profitability of the suite will improve over time.
The suite was empty for about six months during the year, something Mr Churcher found unnerving, but he says he’ll never sell.
‘It sat around empty for a while and it was really frustrating, but that’s the game you play. You should never sell property; there’s no point. You pay so much in terms of sales fees and stamp duty costs and GST that the profit margins you make are actually really small.
‘People love to buy and renovate to sell again, and initially that’s what I thought I wanted to do, but I realised there was a better way to play the game.’
Melbourne buyers agent Monique Sasson Wakelin agrees that any property you buy is something you should keep for the rest of your life.
‘If you’re serious about using property as an investment that’s going to work for you, you don’t sell it, you buy a something and then borrow against it to buy another. It may take a while to get into the big family home you’ve always wanted, but it means you’re growing the investment in a way that’s sustainable, and in a way that means you’ve always got revenue coming in,’ she said.
But for many Gen Ys, building the deposit for a first home is nearly impossible and a source of major unease.
‘It definitely worries me. I want to own a house, and I work hard, but I just don’t understand how it’s possible to even enter the market when prices are like this,’ Sydney-based professional services consultant Annabel Gorman said.
A commerce and law graduate, Ms Gorman has worked for more than five years in a number of accounting firms, and still struggles with the reality that homes in suburbs close to the city that offer attractive prospects for capital gain or rental returns easily cost more than $1 million.
‘It just feels completely unrealistic that I could ever own a home with prices when affordability is so low. I suppose we just have to accept that we’re going to be spending our lives in debt.’
Heading for Brisbane
But while prospective buyers in Sydney and Melbourne complain about the impossibility of buying homes in the country’s most expensive, and fastest-moving markets, other savvy buyers are shifting their focus to more affordable markets where the outlook for capital gain is just as promising.
Advertising executive Caleb Watson is just one example of a wave of Sydneysiders and Melbournites chasing affordability and lifestyle benefits by selling up in the south and moving to Brisbane.
Frustrated with a lack of space in Sydney for his wife and two young babies, he sold his two-bedroom Bondi apartment in favour of a three-bedroom home in Hendra, in Brisbane’s north-east.
‘We looked for 18 months in Sydney and found it was just depressing. We knew where we wanted to live, and each weekend we would find ourselves looking at houses further and further away. I had just started doing more work in Brisbane, and I said to my wife ‘Why don’t we have a look up there?’.
‘We ended up paying about 25 per cent less for our home there than anything we would have found in Sydney.’
McGrath Estate Agents founder John McGrath suggests Brisbane as a region that young home buyers should consider if they feel they’re not getting anywhere in Sydney or Melbourne.
‘It’s seen minimal growth in the past few years, and you can find such good value and such a great lifestyle. You can sell a home in Sydney’s Paddington for $2 million, and replicate it in Brisbane’s Paddington – which is a similar demographic and a similar distance from the city – for half the price,’ he said.
New infrastructure projects including the East-West Link and the CLEM7 tunnel and a solid public transport system offer lifestyle benefits, while its location on the river and close to the sea and Sunshine and Gold Coasts are added advantages.
‘They’ve also had some huge cultural leaps forward in the past couple of years as well,’ Mr McGrath said, referring to the Gallery of Modern Art and the exciting retail and bar and restaurant-hub renaissance of Fortitude Valley.
‘In many parts Brisbane is still 9.5 per cent below its pre-GFC prices, whereas Sydney is 9.5 per cent above. You can get enormous value for money.’
*Not his real name.