From Banking Day:
…For the ABS, a first-home buyer is anyone who applies for a first-home owner grant. However, several states have changed the conditions of their grants, so that only people buying newly-built properties are eligible.A first-home buyer buying an established house or unit may not be captured in the ABS data.
Mortgage Choice chief executive, Michael Russell, said: “…we are not including in the first-home buyer count those genuine first-home buyers who are electing to buy an investment property in lieu of a property owned for occupation. This is a growing trend, yet their presence as first-home buyers is not accurately recorded.
ANZ’s general manager of mortgages and deposits, Brad Gravell, said: “In the last couple of years, the movement of activity from other segments is also clouding the data. The data on first-home buyers is not necessarily absolutely correct.
“The executive director of distribution at NAB Broker, Steve Kane, said: “At auctions it is actually mums and dads investing in units for their children for 10 or 15 years time.”
These all sound like excuses to me. If FHBs are buying investment properties, or having their parents do so, then something is wrong with affordability.
David Llewellyn-Smith
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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I find it a sad reflection on Australian society that we consider it normal for FHBs to buy an investment property as their entry into the property market.
It’s just crazy that we have land valued at $4,000 a square meter in the capital cities (that’s my 127sqm land is valued at.)
The political party that fixes this issue, helps to fix the lagging MFP isues the ecnomy is also facing.
Just a shame it will likely cause a banking crisis if values fall back to their real levels. Don’t see that kind of wealth transfer from the rich and powerful every happening without a recession causing it.
That’s a very small block – typically increasing the price per sq meter exponentially..
An averaged sized block of, say, 340 sq meters should be worth about 25% less than yours (per sq meter)…
that’s nothing to hang your hat on though.. still shamefully expensive
I don’t think that FHB are buying investment properties because they can’t afford a first home. I think they’re buying investment properties and negatively gearing them because they’re trying to get financially ahead.
The fact is, if two FHB friends bought houses, they would be financially better off to rent their properties out to each other than to live in their own properties.
This is the issue. I have been a direct beneficiary of this, although it was more by good luck than good management. I bought my first home when the world was about to collapse in 08/09. Lived in it for a year, then moved for work, so have rented it out since. Due to a generous depreciation schedule as well as the fact that rental yields are hideously low, I’ve scored a nice little tax deduction every year, and if I move back in or sell within 6 years the proceeds are CGT free.
Its certainly not right that by renting out my house & renting elsewhere I’ve financially benefited.
Oh you are so financially astute.
Just checking one thing though. You know that CGT would only apply to capital gains?
So if you sell at a capital loss after accounting for stamp duty, agency fees, other transaction fees etc. CGT doesn’t apply anyway.
“and if I move back in or sell within 6 years the proceeds are CGT free”
I’m not so sure about that.
If the nature of the property changes from investment to PPOR i think that would be regarded by the ATO as a “capital gains event” and CGT charged on the assessed value gain during the time it was rented (50% discount applies).
CGT events are triggered not just by sale.
melbourneguy – Thanks for the sarcastic response, but my comment was not about how smart I am, it was about how ridiculous the system is. I bought my house not as an investment but as a home to live in. My change of circumstances meant it was no longer appropriate to live, and our draconian stamp duty laws make the cost of transacting in property so high that it is not financially sensible to sell and re-buy when temporarily moving. As a result of this circumstance I have been forced to become a landlord resulting in me essentially being able to pay off my mortgage using pre-tax dollars and claim all the other perks of a property ‘investor’.
Yes I am aware that you need to make a profit and due to the property bubble that we have been in for the last 2 years most people who bought in 2009 would make a healthy profit on their ‘investment’ if they were to sell today, especially given most of us paid no stamp duty on the initial purchase and picked up a $14k handout from the Government.
The Jonessess – Have a look at this ATO example. If you don’t treat another property as your PPOR it retains its CGT exempt status for 6 years: http://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Treating-a-dwelling-as-your-main-residence-after-you-move-out/
TheJoneses
I believe SN C is referring to the absence concessions that relate to PPOR’s, whereby you can claim a PPOR exemption for a property for up to 6 years after you cease using it as a PPOR (to rent or vacate), then you can apply it if you don’t claim the PPOR for some other property (by renting for the period).
I didnt know that, thanks.
Yet another tax perk for property owners!
I wonder how many FHBs are buying the house they want and renting it out for a period so as to claim a tax deduction on the transaction cost and early maintenance and renovations because to not do so would be unaffordable for them? Stating the obvious I think but pitiful if that’s the only opportunity they see to enter the market.
So this is just a Bankster trying to make the housing market look healthier then it is by changing the definition of FHB.
Yes, monger, it is all spin. FHBs can’t afford to buy their shelter. Fat loans secured on rents PLUS personal income buys them a property – one they can’t use. Can only MB readers see the contradictions?
If this is to be a permanent high plateau, then I am a permanent low renter. Just renewing my lease, third year without a rent rise on a good house in a quality location. Gross yield ~2%.
And over the 3 years how much captial gains have you foregone and how much is your investment balance from your savings?
You will not want to be renting when you retire unless you have accumulated lot of wealth in other investments.
Whatever you do is not without risk and maybe the era of home price appreciation and a multiplier effect on your equity has passed, but maybe it hasn’t.
My, that was quick, Explorer.
“You will not want to be renting when you retire unless you have accumulated lot of wealth in other investments.”
I would say, you do not want to retire having paid off a dwelling, own nothing else and rely on the old age pension. Further, there is a genuine risk of government including imputed rents in pension calculations some time in the future.
This is the worst time in 140 years to buy residential property. Prices, driven by bad government and a rapacious FIRE sector, could stay high for my entire working life – but I doubt it. FHBs are almost completely excluded from buying and without their new blood this Ponzi will fail. Prices will revert to mean.
David,
We all make our decisions and have to live by them to a greater or lesser extent.
You may be right, there is plenty to suggest that the rapid growth of the past 30 years is over.
Good luck with whatever you decide is right for you.
David how can you still possibly believe that prices will revert to mean any time soon? They need to. They should. But can’t see it happening.
Andy!
I know I sound like a Cassandra. But look around you. Are homebuyers achieving a lifetime of security and comfort? Can a mortgage set you free? Do genuinely wealthy people with good advice invest in residential rentals?
Three days ago Warren Buffett in his annual shareholder letter described two successful property investments he made, seven years apart. In one, the vendor was the Federal Deposit Insurance Corporation; in the other the Resolution Trust Corp. Both were very keen to rid themselves of quality assets.
I am not as smart as Buffett, but I do detect a pattern in his behavior – one we would all do well to emulate.
Don’t Buy Now!
@David, thanks for the reply, interesting perspective. I admire your tenacity. We live in hope.
@Explorer
And over the 3 years how much captial gains have you foregone and how much is your investment balance from your savings?
Assuming you can get in and out in time, sure… just ask the investors in mining towns…
You will not want to be renting when you retire unless you have accumulated lot of wealth in other investments.
You also don’t have to live in Australia. The mrs and I went to have a look at a townhouse/townhome over the weekend.
http://www.realestate.com.au/property-townhouse-vic-ashburton-115658071
While we are FHB, I wouldn’t say we are typical. Nice place, 26 squares + garage. ~400 sqm of land. set of 4. They already had offers of 1.1M and were wanting 1.25M.
Now say we can actually can get a 50% deposit, we still need a 700K mortgage to pay the place off.
And to all those that are going to say, you should start small and far away… Why? Granted this is a nice place, but it is by no means a luxury mansion or something that should be out of reach of a FHB with a (very …) healthy deposit.
Being frustrated by this, last year we invested in a commercial property overseas that is returning 1.5%- 2% above all costs.
I am happy to rent, save up, invest wisely and move outta Melbourne or Oz if need be.
@dc
Do genuinely wealthy people with good advice invest in residential rentals?
From annectdoctal evidence, no expect for tax rorting.
Late response so I don’t know if you’ll see this @DC. I have a lot of time for your arguments. But you are enjoying an exceptionally low rental rate.
Good for you.
In my experience the vast majority of landlords will accept nothing like that sort of gross yield unless there is drastic oversupply or the property is in the highest price brackets of its particular market.
A more realistic 4-5 percent paid out of after tax income changes the economics dramatically. By all means take account of your own circumstances, but I think you’ll find it doesn’t work out that sweetly for the majority.
Slambo: “In my experience the vast majority of landlords will accept nothing like that sort of gross yield unless there is drastic oversupply or the property is in the highest price brackets of its particular market.”
You have the landlord/ tenant paradigm inverted.
Rents are linked to wages, the market price of property is not. Landowners holding out for higher rents get persistent vacancies and cannot be selective about tenants. The owner of the property I rent is paid on time, the garden is looked after and the interior kept clean. A third year no rent rise makes more sense than vacancy, letting costs and a new tenant of unknown quality, likely worse. We did not negotiate.
My arrangements are not exceptional for Boroondara. With so many ‘little landlords’ hoarding property for capital gains, this is a renter’s paradise.
The hard part is finding the place you want to actually rent.
I found it near on impossible to rent something of decent size with large shed without going to full acreage.
In the end I cannot say with any certainty that exactly what I bought could be rented cheaper as it simply did not exist.
@DC
No doubt you will be correct but exactly how and when is anybody’s guess. And what the outcome will be is still largely speculation.
Some of us can put our lives on hold other can’t as long as your decision is prudent then that is all you can do.
I have put off buying a house for most of my working life I’m 40 now, do I wait till I’m 45-50 60 even?
Buggered if I know. Buggered if anybody knows.
This housing thing will collapse but how and when is any ones guess no one knows what tomorrow will bring.
The BIGGEST single problem is people trying to put forward rational logical arguments about what the future holds for any market at the moment because non of these markets are even remotely logical or rational.
You simple cannot reason emotional chaos.
Good news! They won’t be needing those FHB grants then.
The picture says it all. To paraphrase what the merchants of debt actually mean in this case:
“*cough*we did break his leg*cough* but look!! he is still standing with the help of the mega mortgage crutch that we have graciously provided *cough*now, let’s break his other leg and earn even more commission.. Yay *cough*