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The property market 'gap' giving first home buyers an edge

·4-min read
An auction sign at a property in Sydney, Australian money and an auctioneer holding a gavel
Despite skyrocketing house prices, first home buyers still have an edge over the competition (Source: Getty)

Home prices are still skyrocketing around the nation – but first-home buyers are being outdone by property investors.

In June, loans to first home buyers fell 7.8 per cent, while loans to property investors rose 0.7 per cent in the same month.

However, despite home ownership seemingly getting further out of reach for first home buyers, director of Aus Property Professionals Lloyd Edge said there is opportunity for first home buyers to win out.

“The logic is that investor activity always drives up prices, and because investors have more spending power, they will always be able to outbid a first home buyer with limited savings,” he said.

“But what if there was a different side to the story? What if the return of investors to the housing market actually presented an opportunity to smart first home buyers?”

Edge said one potential gap in the market is the types of property each group is interested in.

Apartment versus houses

ABS data shows that in April, investor loans across Australia increased by 2.1 per cent, reaching a record four-year high of $8.05 billion.

However, Edge said investor activity is currently being focused on semis, terraces, freestanding homes, and not apartments.

“While going to head-to-head with a cashed-up investor may be tough if you’re buying a house in a metropolitan area, there’s far less competition in the apartment market, which could be good news for first home buyers,” he said.

Opportunity for first home buyers

Back in 2011, the gap between the median cost of renting a house in Australia and renting an apartment was just $5, Edge said.

“Fast forward ten years, and that gap has widened significantly. In Sydney, the median cost of renting a house is now $80 more than the median cost of renting for an apartment,” Edge said.

“Many home buyers are currently living in apartments and paying less each week in rent than investors who may already be living in houses.

“Thanks to the cheaper cost of apartment rents, these first home buyers are able to save more money each week towards their deposit, which may ultimately allow them to buy into the market sooner.”

Additionally, first home buyers may consider ‘rentvesting’ for a few years (continuing to live in a rental apartment while leasing out their own property), as the lower rental costs could help improve cash flow and pay down the mortgage sooner.

Australia, Sydney, the traditional houses of Forbes Street
Edge suggests first home buyers consider 'rentvesting' where they continue to rent a home while owning an investment property (Source: Getty)

Government support gives first homeowners an advantage

When purchasing a property, buyers usually need to provide a 20 per cent deposit to avoid paying costly Lenders Mortgage Insurance (LMI).

However, thanks to the Australian Government’s First Home Loan Deposit Scheme, a large number of first home buyers can secure their chosen property with a deposit of just 5 per cent.

Edge suggests this could be the edge they need to get the deal. Under the Scheme, the Federal Government acts as a guarantor for up to 15 per cent of the home loan meaning first home buyers won't have to pay the cost of LMI.

Another form of government assistance that is giving first home buyers an edge is the NSW Government’s First Home Buyer Assistance Scheme.

The Scheme means that eligible first home buyers don’t have to pay stamp duty on homes valued at less than $650,000, or will receive a discount on stamp duty for homes valued between $650,000 and $800,000.

“As a result of the Scheme, first home buyers have a clear advantage over investors when looking at properties within that range, with eligible first home buyers saving a massive $24, 457 on stamp duty for a property valued at $650,000,” Edge said.

“If you’re a first home buyer looking to enter the market, the return of investors doesn’t necessarily spell trouble.

“In fact, if you find the right property, make the most of paying low rent, and take full advantage of the government assistance on offer, you may just find yourself in a very strong position to secure your first property.”

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