FHBs turn investors to hedge rising prices

By Martin North, cross-posted from the Digital Finance Analytics Blog

First Time Investor Buyers Focused In NSW – DFA Blog

After the ABS data came out yesterday, DFA updated its industry models, and included the status of First Time Buyer Investors, at a state level. We had already shown that there were many First Time Buyers who were not able to buy an owner occupied property, and were switching the an investment alternative, as a way to enter the market, and hedge on future value growth. Here is the updated picture, incorporating the latest DFA data and ABS revisions.

FTBINVandOODFADec2014The number of Investor First Time Buyers continues to grow. Combined, the total number of First Time Buyers is rising, reflecting the momentum in the market. First Time Buyers are more active than thought, even if the ABS misses the Investor data. However, if we look at the state splits, we see that it is all NSW. There are a small number of FTB in the other states buying investment property, but it is mainly a NSW phenomenon at the moment, though we think it likely other states will follow suite.

FTBDFAINVDec2014In fact, if you look at the comparative data, we see that there are significantly more Investor First Time Buyers than Owner Occupied First Time Buyers in NSW. Around 2,000 owner occupied First Time Buyers, but 3,500 Investor First Time Buyers. We also found that close to 80% of these investors went for an interest only loan (for tax and serviceability reasons).

NSWINVFTBDec2014Compare this with VIC, where the trend is just starting to take off. Again, in this small sample, interest only loans featured significantly. VICFTBINVDec2014Finally, if we look at the latest First Time Buyer barriers to purchase data by selected state from our surveys, we see that in NSW, they are more concerned about high prices, and finding a place to buy compared with other states. On the other hand, fear of unemployment was lower than in all other states, whilst in figures more strongly in QLD, SA and WA. (WA attitudes are changing fast as the mining boom subsides).

FTBDriversStatesDec2014So, one of the reasons for the growing of investment property lending, is the NSW led switch by First Time Buyers into the Investment Sector. From our surveys, we found that:

1. Most first time buyers were unable to afford to purchase a property to live in, in an area that made sense to them and were being priced out of the market.

2. However, 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.

3. About one third who purchased were assisted by the Bank of Mum and Dad, see our earlier post. More would consider an investment property by accessing their superannuation for property investment purposes, a bad idea in our view.

Given the heady state of property prices at the moment, this growth in investment property by prospective first time buyers is on one hand logical, on the other quite concerning.  We would also warn against increasing first time buyer incentives, as we discussed before.

Our analysis also highlights a deficiency in the ABS reporting, who are currently investigating the first time buyer statistics (because in some banks, first time buyers are identified by their application for a first owner grant alone). They should be tracking all first time buyer activity, not just those in the owner occupation category.

You can watch my earlier video blog on this subject here.

 

Comments

  1. I wonder if the DFA first time buyer survey differentiates between resident and foreign property buyers…

    Why aren’t we seeing the same trend in QLD which also dumped the FHOG for established properties in 2012 (same year as NSW)?

      • IMHO this is the unintended consequence of the withdrawal of the FHOG for existing homes that just nudged the price out of the reach of some FTB’s. Having done that it has set a new trend for NSW FTB’s to buy as investors.

        On an individual level who can blame them, but as a group they have found a new way of pushing the prices even higher in our most expensive market. As a group they are also very financially stable living in mum and dads pockets at home and collecting rent.

        Nevertheless one would have some concerns that this could start a national trend in a nation where ideas are written up on blogsites and move quickly into the national psyche.

      • You’re explanation probably accounts for at least some of the first time investor buying, but if the stats DFA published don’t exclude foreign buyers or temporary residents through whom some family may be funnelling purchases, then it may not be the only driver of the numbers.

      • As a group they are also very financially stable living in mum and dads pockets at home and collecting rent.

        Er not quite. I would be surprised if most of them were living at home. As an accountant friend of mine put it to me long ago, if you wanted to get into the property market, you would be stupid to be a OO.

        We should all be landlords!

    • I’m with you BB, I suspect a large chunk of those FTB are foreigners, most of which are new long term immigrants.

      I personally know of 4 “foreigners” who have bought this summer (2 families have arrived in the last 3 of years, one about 5 years ago and another about 8 years ago (Brits & Chinese), non were investors & all had owned previously overseas).

      2 were of the opinion that Sydney was over priced and likely to correct but have finally been beaten into submission by their wives who only see other peoples houses rising in value ….

    • Martin_DFAMEMBER

      HI, I have data on the residential status of each first time buyer, so I will run a series analysis to determine the extent of FTB who are foreign property buyers. Will take a little time though. My hypothesis is we will find foreign purchasers in the mix, but most will be locals.

      Martin DFA.

  2. So serious question. Is this worth doing ? Should i do this as a non home owner thinking about buying at some future point ?

    • How can I address this logic?:

      If you couldn’t afford to date women, should you date a tranny instead as an entry point in the market for women?

      Will this make you better off in the long term or will there be a surprise waiting for you?

      Will your purchase decision today curtail your future options?

      • Thanks for taking the time to answer, i appreciate the feedback. Its always good to get other peoples take on a subject, especially when my own expertise and experience on the subject matter at hand in insufficient.

        Just one thing, could you please tell me what a tranny is ? And what is a tranny’s relationship to women ?

      • If you couldn’t afford to date women, should you date a tranny instead as an entry point in the market for women?

        LOL.

        Is the tranny entry point a viable alternative to that of a woman?

        should you date a tranny

        Probably not. Even a small poletop 11kv/415v tranny would give you quite a belt if you tried to snuggle up to it.

      • “If you couldn’t afford to date women, should you date a tranny instead as an entry point in the market for women?”

        That was pretty good!

    • @ AM On a serious note: I all depends on what you think the market will do. If you believe house prices will continue to rise at the rate they have in the last decade or two then yes it would probably be a good idea due to negative gearing etc.

      However if (like most on this forum, I believe) you expect values not to grow at the rate they have done, & possibly even fall, then probably not. And/or if you expect changes to negative gearing etc.

      Personally I think there is too much uncertainty at present and it would be best to hold off and see what happens in the next year ……. I suspect there will be some nasty shocks to the economy etc.

      (Of course you will have to make your own decision and consult an independant professional as to how it would suit your circumstances, as the above is just my opinion and should not be considered as advice in anyway!)

  3. highly leveraged purchase of an extremely expensive undesirable asset usually would not be called hedging. In fact, such purchase would usually require another investment as rick control hedge.

  4. Its the culture. My friends are buying, my parents are telling me to buy, my neighbour is telling me to buy, the guy banging my cousin at the BBQ who is successful from buying is telling me about all the glory he has achieved from buying property.

    Its the heard mentality. No one unless they really speculated or used their property as collateral in a business venture has ever lost in Sydney in the past 20 years. Why would it stop now?

    • Reminds me of a conversation I had with someone recently at a Birthday party, he has been starting various IT businesses and is trying to make a go of it. I said I was thinking about buying a rental property out in Frankston and doing exactly what this article describes (First Time Buyer Investor) to take advantage of the unfair tax system that negative gearing facilitates. Hey at some point it’s can’t beat em’? Join em’…

      Anyway he said to me, “you can’t loose with property”…. which is when I recoiled to myself and thought that’s exactly what will cause all this to come unstuck…

      I lived in Ireland from 2008-2013 and saw what happened when property tanked. If I didn’t take that lesson with me, then I’d be foolish. Problem is with the increased gains being seen in both Victoria and NSW I can’t help but feel I’m the sucker sitting it out…..

      • Problem is with the increased gains being seen in both Victoria and NSW I can’t help but feel I’m the sucker sitting it out…..

        Know how you feel …

  5. reusachtigeMEMBER

    Good to see young people getting on the property ladder by any means necessary. This will ensure that they find adequate looking spouses to match their own beauty. They know this, youse just don’t.

    • Mining BoganMEMBER

      Hang on! Isn’t that dangerous?

      If two good-looking property investors got together, wouldn’t the sheer magnitude and force of that beauty be enough to tear a hole in the time-space continuum?

      • Thus creating a black hole whose gravitational vortex is beyond the imagination and comprehension of any rational property investor ?

        The result – all these good looking investors get sucked right into the middle of a parallel universe where property prices only ever go down !

        And then realizing that property prices can actually fall all those good looking people instantly turn butt ugly as their long held view of the property investing world gets turned on its head.

        Hmmmmm……could be a good thing….might be on to something there.

    • If having lots of money and making smart investment choices makes you beautiful, what happened to Gina Rinehart?

      • There are some things that money cannot buy.

        In Gina’s case the money gods looked at her and in unison all shook their heads and muttered unintelligible things.

        After a lot of ruminating, tea leaf reading and looking at entrails the gods deemed Gina to be beyond salvation.

        “I know”…..shouted the most powerful god of them all.

        “Let us make a TV series about the poor lady….that will cheer her up no end seeing that her ugliness is beyond salvation”

        So now instead of having to worry about her hideous countenance Gina now has something else to complain about.

        Problem solved……………

  6. Open the link and have a look at this bloke.

    http://www.macrobusiness.com.au/wp-content/uploads/2015/02/ScreenHunter_6043-Feb.-12-14.21-200×200.jpg

    His daughter received a “PM’s daughter” $70k grant, the media discovered and STILL kept the money, and WE LET him/her.

    Do you really think he or any of the other parasites won’t sell our entire future to ensure their investments don’t lose value?

    None of this makes sense but our politicians are committed to it. They’ll destroy the place and a dumb electorate will watch them do it.

    Stop kidding yourselves and buy a fucking house.

    @flyingfox “if you wanted to get into the property market, you would be stupid to be a OO”…What does that mean?