It’s long been assumed that when investors return to the housing market in increasing numbers (as they are doing now), that spells bad news for first home buyers.
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.
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?
Why are investors returning?
The latest Australia Bureau of Statistics 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.
But the properties investors have their eyes on right now may not be the same ones first home buyers are looking at.
According to Thomas McGlynn, head of sales at BresicWhitney, investor activity is currently being focused on houses, not apartments, saying:
“We are seeing investors returning to buy properties that are semis, terraces, freestanding homes.”
So, 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.
The ‘gap’ that shows an 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.
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.
Why is this good news for first home buyers?
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.
In addition, 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.
Government support gives first home owners an advantage
When purchasing a property, buyers usually need to provide a 20% 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 in NSW can secure their chosen property with a deposit of just 5%, which could just be the edge they need to get the deal.
Under the Scheme, the Federal Government acts as a guarantor for up to 15% of the home loan meaning first home buyers won’t have to pay the cost of Lenders Mortgage Insurance.
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.
First home buyers need to play to their strengths to beat our investors
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.
If you are looking for a buyer’s agent to assist you with purchasing a home or investment property in the Sydney, Brisbane and Newcastle regions, please get in touch with Lloyd Edge and his team at Aus Property Professionals here or give us a call on 1800 146 837!
