Property investors hog first-home market; Ask dejected first-home buyer who outbid them at auction, you'll get a consistent response. Property investors.
Tweet Topic Started: 9 Oct 2013, 03:13 PM (743 Views)
Ask any dejected first-home buyer who's just been outbid at an auction who it was who beat them, and you're likely to get a consistent response. Property investors.
The rise in house prices, especially at the more affordable end of the market, is being driven heavily by people buying homes they have no intention of living in.
The share of home loans going to first-home buyers has fallen to near an eight-year low. Investors' share of new mortgages being written, on the other hand, is above its long-term average at more than 36 per cent. In NSW, investors have a whopping 40 per cent share, the highest level in almost a decade.
If you're one of those people who reckons property is indeed an attractive investment at the moment, you may ask ''So what?''
When fixed-interest rates are below 4 per cent, and rental yields around this level, it's hardly surprising more property investors are snapping up homes.
But some market analysts say the big role of investors is also a vulnerability.
So what's more risky about a property boom based on investors?
An important factor is that many investment properties are actually loss-making, because they are negatively geared. This is where the cost of the (tax deductible) home-loan interest repayments are greater than income from rent.
It's a wildly popular strategy that relies on capital gains in the long run and can be effective when prices are rising quickly and the economy is in good health.
What appears to make sense for individuals, however, isn't necessarily healthy for the system as a whole.
THERE is a widely-held perception that has to do with the concept of value for money.
Housing in Australia - and in particular, new housing - is not perceived as offering "value". In fact, quite the contrary. Some would say there's little bang for our buck when it comes to housing.
But offering value for money is quite different from being unaffordable.
Affordability myth busted
First-home buyers, for example - let's just call them Gen Y for the sake of a name - statistically may well be able to afford to purchase a home.
Yet the long-term average in Australia for the take-up of loans by these first-home buyers is only a 15 per cent market share.
A stumbling block for the Gen Y cohort today could well be a generational mismatch between this group and the expectations of the financial services industry.
Our normal banking process for home loans - that of requiring a savings history, sizeable deposit, full-time work, lengthy periods of employment and a stable record - may be at odds with the way in which today's younger generation wants and sometimes needs to work.
This group is more mobile when it comes to changing jobs - the Australian Bureau of Statistics shows that those in the 20-24 year age group are three times more likely to change jobs in a year than those in the 45-54 year age group. And this group, also, are more willing to take up the growing job opportunities in our system, of contract or project work.
It is true today for some industries that this type of employment is becoming more prevalent than traditional jobs.
This also means that contract workers may have to forego certain entitlements, like superannuation and long-term employment. And they may be penalised when it comes to applying for housing loans.
Yet despite their reputation, some recent studies have found that Gen Y are becoming more fiscally conservative; with a reported 94 per cent of respondents in one survey planning to buy a home within five years; and another stating that Gen Y respondents were averaging weekly savings of $150.
Just as times change, it could be that with our ageing population, conditions imposed by mortgage lenders may need to change too. A revamp of the lending process may be in order in the future to meet this growing group somewhere in the middle.
Or perhaps Gen Y may need to revise their options or become less selective when it comes to choosing their first property.
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