First-home buyers are turning their back on the Great Australian Dream of having their own home to live in and are instead increasingly opting for an investment property first, new data shows.
Described as ‘rentvestors’, a third of investors in 2016 were first-time buyers who had not yet bought their own home, a Mortgage Choice survey found.
This compares to when the property boom was heating up in Sydney and Melbourne two years ago when about 20 per cent of investors fell into this category.
In June 2015, 26-year-old business analyst Jef Miles decided to buy his first property. His salary was between $80,000-$90,000.
But instead of buying a home in Sydney’s western suburb of St Marys, where he rents in a sharehouse for $150 a week and the median price is $510,000, he bought an investment property in Brisbane’s Zillmere for $334,000.
The property rents for $350 a week, which pays for the “majority of the outgoings”, he said.
“It’s been an great way to allocate extra funds that I would have been using to pay for an owner-occupied property into an asset that is likely to continue to grow,” Mr Miles said.
“Renting suits my lifestyle, gives me the flexibility to travel and have the opportunity to build and create wealth, while optimising my tax and accounting situation,” he said.
He encourages other younger property buyers to consider it as an option due to “the difference between a mortgage repayment and rent” and as it opens up interstate markets and locations that might not be where you want to live.
Mortgage Choice chief executive John Flavell said many first-time buyers “have come to the realisation that they may not be able to afford to buy their first home in their dream location”, and instead of waiting to buy something undesirable, investing offered a better financial opportunity.
This shift could mean the official statistics showing record low first home-buyer activity in NSW and figures below 10-year trends in Victoria and Queensland understate the buying activity of young Australians.
“[Rentvestors] purchasing investment properties wouldn’t be documented as a first-home buyer in the data, which could be skewing the figures,” he said.
Identified as the “most common new buying habit” in LJ Hooker’s The (new) Australian Dream white paper last year, Google Trends shows the term ‘rentvesting’ began to get traction in May 2015. Since then, online searches with this term more than tripled.
But while young Australians seem to be giving up on buying a home and instead purchasing an investment, they’re often intending to turn the investment into their home at a later date, Keshab Chartered Accountants and VJR & Associates tax adviser Jeremy Iannuzzelli said.
“Tax benefits, including depreciation and negative gearing, can help facilitate young investors paying down the loan for the first two or three years,” Mr Iannuzzelli said.
By using the rent coming in, plus any regular savings, the loan could be paid down much quicker than if a first-home buyer moved in straight away.
This could fast track the investor into becoming an upgrader more quickly than a first-home buyer would typically be able to afford to, he said.
But he warned the strategy could “attract substantial capital gains tax” when a property was renovated or in an area with substantial price growth, even if the property became a main residence.
Date: 23rd May 2016
Author: Jennifer Duke