House prices have soared and it is a financial struggle to get in to the housing market - the increasing unaffordability of comfortable homes in preferred areas is mitigating against home ownership for personal use, for these younger buyers.
The number of first home buyer grants – redeemable only on new dwellings, such as off-plan apartments and house and land packages have fallen to very low levels – an indication of fewer buyers for entry-level options. An additional problem is that, should entry-level buyers buy off-plan and the value drops, they can be worse off than if they had done nothing. Banks are also nervous about lending to buyers and developers for off-plan options.
Younger buyers are opting to rent for longer periods of time – often upgrading on their rented accommodation as their family grows. The affordability issue is also impacting on major life decisions, such as living together and having children.
Younger buyers don’t want to be saddled with mortgages while living in a tiny box in the outer suburbs just to satisfy some societal expectation. There is a growing trend for some younger buyers to purchase property as an investment, and rent accommodation in which to live. They would prefer to invest in property in more affordable locations, and rent and live debt-free in the inner city — close to work, friends, public transport and good coffee.
The current tax situation makes buying for investment an affordable option. Management and maintenance costs for a rental property are tax deductible, and If your potential rental income will be less than the costs associated with the property, you can offset this loss against your income such as salary and wages, business or investment income. A new or near-new building is depreciable over 40 years at a rate of 2.5% per annum. Fittings and fixtures can be depreciated over 5 years.
So considering all of the above – it is about some younger buyers accepting they can’t afford to buy where they want to live so they’ll be tenants there instead, and buy an investment property — not necessarily where they want to live, but one in a high-growth area. They then enjoy all the lifestyle and flexibility benefits of renting in a preferred location close to the beach, public transport, cafe culture, their friends and work while still having the security of investing in property elsewhere.