A new wave of Generation Y investors is entering the property market and many are using negative gearing as their way in.

ME Bank chief executive Jamie McPhee said high prices had forced many young buyers to enter the market as investors instead of owner-occupiers. ”What we’re seeing is that people who are buying an investment property are still living at home or renting with a group of people,” he said. ”When their financial situation improves when they’ve saved more, they can move into the home.”

According to the Australian Bureau of Statistics, the number of first home buyers has fallen to a record low, but these figures don’t take into account those whose first property is an investment and Mr McPhee said the official number underrepresented the case. A recent national survey by ME Bank based on 1500 households found 15.3 per cent of Gen Ys were saving for an investment, while 24.7 per cent intended to buy a home to live in.

Mr McPhee said the rise in first home buyers saving for an investment was in the more expensive parts of Melbourne and Sydney.

First home buyer Foong-yue Cheah bought a three-bedroom house in Noble Park for $348,000.

But Ms Cheah, a 30-year-old procurement officer at RMIT University, quickly realised it was more viable to use it as an investment and rent a property closer to work.

Now living in a two-bedroom flat in Brooklyn with her fiance, Jonathan Lee, she is receiving $250 rent a week from her Noble Park investment.

”My income is above a certain tax bracket, so it makes sense to have a property that may be negatively geared so that I can claim it back,” she said.

”For the amount that we pay in rent, it just made more sense to live in the Brooklyn area. For the same amount of money we’d be hard pressed to be able to mortgage something this close to the city.”

A survey conducted by Mortgage Choice in 2013 also pointed to a new generation of home buyers using investments to enter the market.

The figures, based on about 340 Gen Ys surveyed nationally, found 40 per cent of them were looking for an investment property as their first purchase.

Century 21 Australia chairman Charles Tarbey said most people who used this strategy didn’t have a choice.

”They’re going to have to buy an investment property because they can’t buy what they want to live in [near] where they work,” he said.

”They’re just trying to get into the marketplace more than anything else.”

AMP Capital chief economist Shane Oliver, who also bought an investment property as his first purchase, said renting and investing had many benefits.

”Using the tax system – negative gearing – to get into the property market has a lot of benefits for first home buyers,” he said. ”You can buy a property bigger or more valuable than one you can actually afford to live in [and] make it into a suburb you ultimately want to live in. It just means you may not move into your dream home for two or three years.”

And these first home investors typically target units, says St George chief economist Hans Kunnen, because the loans are smaller and more manageable.

But it’s not for everyone, Mr Kunnen said, only for those who are ”fairly forward thinking and very financially literate”.

Posted by Christina Zhou – The Age on 2nd February, 2014