It’s hard to own a home

November 9, 2016

Australia's extended housing boom has been great for existing homeowners – especially in Sydney and Melbourne where prices have soared over the past four years – but for people looking to break into the market, the Great Australian Dream is looking more like an impossible dream.

Federal Treasurer Scott Morrison says “the market is getting away from people”, particularly younger generations.

In a recent speech, the Treasurer said home ownership among 25-34 year olds dropped from 38.7 per cent to 29.2 per cent between 2002 and 2014.

"That is more than 160,000 young people who would otherwise be home owners," Morrison said. “No matter how hard they work or save or even earn, they are finding it harder and harder to get into the market."

Housing affordability is not a new problem and home ownership rates have been declining steadily over the past 20 years. The proportion of homeowners currently sits at 67% of the population, down from 71% in 1996.

Inheritance isn’t what it used to be

According to a recent report by KPMG Economics improved health outcomes, which allow individuals to live longer, has “delayed and potentially eroded” access to inherited wealth for younger generations.

“One point that seems to be intuitively understood but not often discussed is the impact of ageing on the housing market,” the report states. “As ‘Baby Boomers’ live longer, and potentially draw down on the equity of their housing investment to fund their retirement, it is also likely that ‘Gen X’s’ will not only access family wealth relatively later in life, but it may also be of lesser value.”

As a result, current generations are forced to rethink their attitudes and approach to homeownership: some young people are now collaborating to buy while others are simply choosing not to buy at all.

The key is in the strategy

Stephanie Brennan, who at age 25 is lauded as one of Australia’s youngest property tycoons, says for young professionals can still get on the housing ladder.

For current generations, she says, buying a home must be less of an emotional decision and more of a strategic one.

"There are many different ways to enter the property market; it's about knowing the rules of the game," Brennan says. "Too often people look for the property first when you should be looking at why you’re investing and what you want to achieve, and then formulating a strategy to get you to that point.

“The last step is finding the right property that matches your strategy."

Other paths to property investment

Mercer financial adviser Ryan Scherini says buying a house or a unit is only one way to break into the property market and direct investment in residential property is notorious for its high entry and exit costs.

“Buying property directly requires significant capital outlay and often involves finance, which can increase your risk,” Scherini says. “Disposal costs are also high and at best it takes 6 weeks to settle a sale.”

He says investing in property indirectly via a managed fund is an alternative way to break into the property market with a much lower initial investment.

“Managed Funds typically require a minimum of $5,000 in upfront capital costs, but the fund manager will generally charge a fee for their expertise so you should seek advice before making a decision,” he says.  “Managed Funds that invest in property can provide diversification with exposure to commercial properties and infrastructure such as shopping centres and office buildings which wouldn't normally be accessible to the average investor.”


To speak with a Mercer financial adviser call 1300 850 580 or book an appointment online.

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