We’re starting later, it’s costing more - is the property dream unreachable in 2020?

Once upon a time, let’s call it the 80s, the average Australian would buy their first home at the age of 24. Here we are, three decades later, and buying property doesn’t occur until we’re 35. Why is that? Is it thanks to the price of housing in our popular cities, and the militant discipline required to save a gigantic deposit? Or is it that we’ve decided to ‘live a little’ in our twenties, choosing renting and share-housing over striving to attain our first property asset? And is property still the asset class it used to be? Let’s discuss.

The conflicting of growth between housing prices and income is a significant hurdle for Australian borrowers. Flat income growth is making the task of saving for our first homes or growing our property portfolios, particularly in capital cities, seem unachievable. A survey of the sentiment of those born between 1976 and 1990 revealed that to be true - getting over the first hurdle of saving the often-required 20 percent deposit is putting home ownership beyond their reach. 

Yet, property remains the goal for many… and perhaps rightly so. Despite the challenges, the great Australian dream remains a staple of our ambition. A Genworth survey found 94 percent of us say it is important. Not surprising, afterall, the advantages of home ownership are numerous. The wealth creation aspect is a big one. For someone born in 1950, who purchased a house at the age of 30 (in 1980), the value of the average Australian property has risen by whopping 187 percent. And this is a unique asset class in that, unlike shares, bonds or cash it provides you with stability in the form of shelter. There are, as we well know, significant tax advantages too; exemption from capital gains tax (CGT) being a notable one. 

But the deposit hurdle is a big one - and as a result we’re less likely to buy and more likely to rent, which has become the norm for over 30 percent of the population. In fact, between 1981 and 2016, home ownership rates among 25 to 34 year olds fell from more than 60 percent to 45 percent.

Are there easier ways in?

Given the expectation of the housing market’s continued growth, Australians want in, but it’s not that simple. There are a few ways to make the process more achievable. Some are well known, others less so. Some are well established, others are quite new. So let me share a few.

  1. Go green for a discount
    Launched only last month, borrowers will be able to get a discounted home loan rate if they buy or build a property that meets high energy efficiency standards. Your property will need to meet a minimum seven-star energy rating to access very attractive low interest rates from 2.44 percent.
  2. New grant for first timers
    As part of a government promise, first time buyers (albeit only the first eligible 10,000 of them) you will only need a 5 percent deposit to make a property purchase, rather than the common 20 percent. The scheme was launched on 1 January and has already been very popular, so act quickly!
  3. Share a slice of property
    Entrepreneurs are creating alternative ways to enter the market. Fractional property investment is a growing option, enabling investors to purchase a smaller fraction of a property. Investors receive income from the rent charged at the property or any capital returns that are accumulated once the property is sold or when they sell their investment portion.
  4. Centralise debt to eliminate it
    It now takes a typical household about 8.7 years to save a 20 percent home deposit. You can get there quicker - and you’re much more attractive to lenders - if you’re not paying off multiple debts and interest, and you have a plan. Consolidation is crucial. I work with a lot of clients to bring all their debts into a central location. It’s a great way to keep debt in check, and pay it down with determination. 

And it seems debt elimination is a goal for many Australians. In November 2019, Australians reduced their balances owing on credit cards to their lowest point in 13 years. The figures equate to an 8.26 percent drop from November 2018. If credit card debt is a focus for your clients, I can help make it easier for them to pay it down. Just ask.  

Can your clients buy property this year? With a little out-of-the-box thinking, yes, they can.