Australia’s sky-high house prices and record-low interest rates appear to be driving a surprising new trend: the rise of the first-home investor.
While the overall number of first-home buyers entering the market is in decline, the number of people using their first mortgage to buy an investment property is increasing.
“On the latest statistics, nearly one-half of first-home buyers that were active in the market went into the investment sector,” independent banking analyst Martin North told the ABC’s 7.30.
“They still want to get into the market and this investment route offers them a back-door entry into the marketplace.”
According to Mr North’s rolling survey of 25,000 households, the volume of first-home investors entering the market has risen from very small numbers during the global financial crisis to about 4000 per month currently.
“They continue to live at home or with friends of family, paying rent,” Mr North said.
“So rather than being an owner-occupier first and get an investment property later, they’re going directly into the investment sector.
“We are effectively becoming a nation of landlords.”
Investment home the new Aussie dream
Sam Edwards is among the thousands of Australians taking the investment route into the market.
He has paid a deposit on a $400,000, one-bedroom apartment in Canberra.
“I plan to access the [ACT] first home buyers grant, but I think I have to actually live in the property for at least 12 months before I can actually rent it out to receive the first-home-buyer entitlement,” Mr Edwards told 7.30.
“I also then plan to, if it’s still available, to negatively gear the property.”
When Mr Edwards leases his investment property, he will move into another rented flat.
Melbourne resident Tom Milton is taking an even more unconventional approach. He has borrowed almost $800,000 to buy a large family home in Melbourne’s inner north that he plans to redevelop.
“What I’m doing is pretty dependent on interest rates being as low as they are at the moment,” he said.
Mr Milton hopes to split the house into two apartments, and build a third unit in the back yard.
He then plans to live in one property, and either sell or rent out the remaining two.
“It is risky,” he said. “I don’t know what’s going to happen with interest rates. I don’t know what’s going to happen with house values in this area and more generally in Australia.
“I certainly hope that the talk of a bubble is certainly a bubble that doesn’t burst, but is maybe a swelling that does go down.”
Young under pressure to buy
Grattan Institute CEO and economist John Daley says despite prices steadily rising, young Australians still face a huge amount of social pressure to enter the property market.
“And you see that, amongst other things, in the aspirations of younger households,” he said.
“They still have the same aspirations to buy a house as in previous generations.
“The difference, of course, is that those aspirations are far less likely to be realised … and in particular are much less likely to be realised for low-income households.”
Mr North is worried about the instability the pressure to buy could bring to the property market.
“Obviously rates are very low at the moment and our expectation has to be that at some point, they will begin to move to more normal levels,” he said.
“I’m not suggesting that interest rates will get back to the 7, 8, 9 per cent levels that we saw previously, but even a 1 per cent lift from where they currently are would move the total pool of those in mortgage stress from around 35 per cent to around 50 per cent.”