First time buyer softness an added incentive for investors: Residex

Strong growth in the property market is leaving first home buyers behind with their numbers at record lows. However, this means good things for investors, according to Residex.

Australian Bureau of Statistics housing finance data recorded first time buyer numbers at record lows in December 2013 and investor loans on the increase.

Founder of Residex, John Edwards, said that investors are taking advantage of the current low interest rate environment, and that older investors using their self-managed super funds to buy property are among this group.

“As a result, younger buyers and those looking to buy a first home are finding it increasingly difficult to afford to purchase property, especially in Sydney and Melbourne, and are therefore having to rent,” said Edwards.

“For landlords and investors, this essentially means a bigger pool of renters – giving an added incentive to purchase residential property.”

Pointing to the affordability equation, with the proportion of income necessary to rent or buy meaning that for many it’s far cheaper to rent than to buy, such as in Sydney where it costs 39.39% more per month on loan repayments, and 50.72% more in Melbourne, Edwards said that younger buyers may see the short term gain of renting rather than buying. However, he urged that it shouldn’t be a deterren, and that the difference is lower in other capital cities.

“Though it can be more affordable to rent for some, people shouldn’t be put off on buying property because of this. We need to keep in mind that long-term savings from paying off a mortgage and capital gains on your own property, can outweigh the short-term benefits of affordability,” he said.

“Also, because there is a strong market of renters out there, now could be a good time for those looking to get onto the property investment ladder to get their foot on the first rung.”

In fact, in two cities it is more affordable to buy property rather than rent, such as in Darwin, where the repayment on a median value unit costs on average $101.08 below the price to rent, and in Hobart where it is $10 a month less.

“The increasing activity of investors has been a feature of the market for a number of years and can be traced back to the start of significant affordability issues for home owners. It’s also expected that investors will be ramping up their presence in the market,” he said.

“Overall, the general indicators suggest that Australia is moving to a situation where a large number of families are going to be renters unless something occurs that diminishes housing costs. Renting in capital cities looks as though it will be the natural outcome for young working families in these areas.”

He pointed to Residex data to show the affordability premiums. See over page for the raw data.

Affordability premiums

Source: Onthehouse.com.au/Residex

jduke@propertyobserver.com.au