The number of first home buyers purchasing investment properties has jumped to record levels in Australia, a new report has revealed.
Low interest rates, tax benefits, the potential for capital growth and the continuing lack of affordability of the kinds of properties the first-time buyer wants to live in are all fuelling the jump in the level of new investors in the market.
“We are now seeing first home buyers buying homes for different reasons, with more investors in the market than ever before,” says Martine Jager, the CEO of RAMS Home Loans. “Pleasingly, we are also seeing that, despite some of the challenges, first home buyers are more determined than ever.”
Jager was commenting after a first-time investor survey conducted by RAMS together with Core Data, found that 19 per cent of first home buyers were intending to buy their property within the next three to six months, up from 14 per cent the previous year. Around 44 per cent of those had been saving for a deposit for two years or more, compared to 41 per cent the year before.
Many of those first home buyers purchasing investment properties are choosing to stay at home with their parents and pocket the rental income as a way of saving for their dream home later. It’s often seen as a much more affordable way of getting that critical first step on the property ladder.
“We’ve really noticed that trend of first home buying going for an investment property and moving back home with their parents so they can save their money,” says Andrew Fawell, director of Melbourne’s Beller Property Group. “Current interest rates are so low, the rent often pays the mortgage.
“In addition, we’re seeing a lot of them rent out their property privately for the first year, so they can claim first home buyer benefits by pretending they’re living there, then when that period’s up, they give it to an agent to manage. Buying an investment place at the moment, with these rates, makes perfect sense.”
Sydney solicitor Aleksandra Ilic certainly thinks so too. She’s just bought a two-bedroom apartment off the plan at Mirvac’s Ovo building in Green Square as an investment.
At the moment living in Rosebery, Ilic, 24, felt that a unit in the 28-storey tower designed by architect Richard Francis-Jones would be a great buy – especially since there was so much competition for them on their release in April, when they almost sold completely out.
“In my experience, it’s been difficult for people of my generation to enter the Sydney property market as it’s so expensive, and it’s a big step and a big commitment,” she says. “So for me I was buying as an investment because I can see how desirable it’ll be in the long-term, and it makes much more financial sense to rent it out so it won’t cost me anything.
“I think a lot of professionals will be keen to live there as it’s so close to transport options, and to the CBD. Then there’s the tax incentive and the likelihood of great capital growth as Mirvac is an extremely reputable developer and, with all the infrastructure planned, I can see Green Square becoming a real urban hub.”
That’s a scenario Sam Elbanna from CPM Realty is seeing more of all the time. “A lot of first home buyers are pushing themselves to buy investment properties now,” he says. “They’re just very keen to get into the market and this is the cheapest option for them. The only downside is for the poor parents, who are having to house them for longer and longer.”
In Melbourne, software designer Henri Lee, 28, is still living at home, a saving that’s helped him buy his first home in Brighton, intending to rent it out. On his calculations, staying at home with his parents means he’ll only have to make a minimal outlay on the mortgage after rental income.
“I’d like to live there one day but, to be honest, I can’t afford it at the moment,” he says. “Maybe in five years’ time I’ll be in a position to move in but by then hopefully I’ll have made inroads into the mortgage, the place will be worth more and I’ll be on a better salary at work.”
The prospect of good capital growth in a rising property market has been singled out as the most important reason first-time investors intend putting their money into property, the RAMS survey found. Of those first-timers, 94 per cent required a home loan, while 59 per cent intended to take a loan with a partner, and 31 per cent by themselves.