Strong first time buyer investor appetite: DFA's Martin North
A recent survey of around 321,000 first time buyer households has found the biggest barriers to buying are high house prices (52 percent) and finding the right property (24 percent).
The latest report by consulting firm Digital Finance Analytics, The Property Imperative 6, featured results from the March 2016 DFA Household Survey and noted 60 percent of households will need to borrow more than they can currently obtain to transact, whilst 62 percent of households will consider using a mortgage broker to assist with the finance arrangements.
The survey found more first time buyers in Sydney are considering or have bought a unit, with the preference for a house dropping in Melbourne and Brisbane.
DFA founder Martin North said the traditional wisdom is that first time buyers are sitting out of the property markets, because prices are high, loans harder to get, and confidence is falling.
"However, one of the most significant developments surrounding first time buyers is that many more are now going direct to the investment sector," he said.
"The number of first time buyers are still sitting at around 13,000 a month in total, still well below the peaks in 2009. Our surveys indicate strong FTB investor appetite. The changed underwriting requirements however are having an impact.
"There are a number of drivers to this trend. First, most first time buyers were unable to afford to purchase a property to occupy, in an area that made sense to them and were being priced out of the market.
"Next, many were anxious they were missing out on recent property gains, so decided to buy a less expensive property (often a unit) as an investment, thanks to negative gearing, they could afford it. They often continue to live at home meantime, hoping that the growth in capital could later be converted into a deposit for their own home – in other words, the investment property is an interim hedge into property, not a long term play.
"Some are also teaming up with friends to jointly purchase an investment, so spreading the costs. In fact, about one third who purchased were assisted by the Bank of Mum and Dad, and would consider an investment property by accessing their superannuation for property investment purposes, a bad idea in our view."
"First time buyers are split between looking for a house or a unit (in Sydney more are looking for a unit). A greater proportion (21.5 percent) this time were simply not sure what to buy, or where to buy, a rise from 4 percent in 2013.
"Putting this together, we conclude that first time buyers are reacting to the current house price boom in logical ways. They are however being infected by the notion that property is about wealth building, rather than somewhere to live. This notion, which served previous generations quite well (once they were on the property escalator), may be tested if interest rates rise later, or property prices fall from their current illogical stratospheric levels," he said.
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