The government of Australia has planned to build 1.2 million homes in well-located areas by investing $5.3 bn to combat the housing crisis from 2024 to 2025, but will this solve the problem of having the lowest number of residential places to live for the commoners?
Investing in property in Australia is the generational desire of every common man, which Baby Boomers have fulfilled in their mid-20s. Yet, Millennials and Gen Z would consider themselves the luckiest if they get a small home under their name in their early or even late 30s.
For this traditional desire, young Australians on average need to secure a home loan in which they have to provide a 20% deposit, equaling $200,000 in metropolitan cities. It’s a decent amount to save in your early-adult life when you have responsibilities of children, home and student debt.
The lack of residential places to live, inflation, and political conflicts worsened the housing crisis in Australia, leading major political parties, the Coalition Party and the Labour Party, to offer solutions to the core issue about which the nation is confused and worried if they will manage to buy a home, or save money for property investing or not.
How to buy investment property when you have a limited amount for a deposit?
With the existing schemes and available options, there are five ways to invest in property and get a home under your name. Each of them has pros and cons. Now you have to decide which of them is beneficial in your case.
Existing schemes for first-timers for investing in property
The Australian government offers multiple grants, schemes and mortgages, specifically for first-time home buyers. Being a young adult, you can go with the First Home Buyer or FHB grants to save thousands of dollars and invest in property. However, these grants do not mean that you can save for mortgage repayments or a deposit.
These grants have flaws, according to Noel Whittaker, a finance writer, who identified how these initiatives increase demand among buyers, which leads to a hike in price.
Grants usually do not offer much money if you compare their amount with the cost of a property. Take an example of First Home Owner Grants, where the value of a house must be no more than $750,000, and within this price range, you will find a few homes in Sydney.
Use super fund for buying an investment property
There are schemes that would allow you to withdraw funds from superannuation for home ownership, such as the First Home Super Saver Scheme.
Superannuation is a fund made from part of your salary for your post-retirement life. By using this, you can pay less tax if your marginal tax is more than 15%. Secondly, you won’t need to pay a mortgage.
Coalition party proposed a scheme they would implement after election which would permit people withdraw maximum $50,000 from their superannuation funds in which employer contribution would be included too.
This idea may seem facilitating initially, but Victoria Devine, a columnist, considers it awful, and Queenie Tan, licensed finance creator, feels a person needs to be careful while going with this way because if a person would sell a property, they have to reallocate the amount of funds they have brought back into the superannuation. Consequently, it is necessary to weigh pros and cons before making a decision.
Secondly, utilizing super to buy an investment property would result in more risk as you won’t have money for your post-retirement life, which means you would have to rely on government services.
Yet, the scheme is ideal for couples or friends who want to buy together. In this way, they would use a portion of their super and have a sizeable amount left for their after-work life.
Using super is a critical option; therefore, first weigh other options and then make a decision. Investor Partner Group can help you utilize the fund for your dream while ensuring you have a modest life after retirement with their plans here.
Pool investment in property
Instead of investing in property yourself, it is accessible to pool funds with a friend or sibling or spouse and make the process less risky.
This method is ideal for couples who are in a stable relationship and have similar goals in terms of finances. Yet, it is important that you and your partner are clear on finances and have a long-term plan to own the property; otherwise, critical situations can bring troubles.
Noel Whittaker finds this method a blessing with danger because anything can happen in life, and what if, due to any circumstances, your partner wants to go their separate ways. They likely will ask for their share, which can become an issue if you want to keep the property.
The ideal solution to these issues is to ask hard questions with your partner before making a long-term plan with them to chase the Australian dream.
Mortgage for forty years
Based on a traditional concept, the best part of a mortgage is that you have to pay a reasonable amount for 30 to 40 years. Yet, it does not include anything which you can call “FREE.”
For Noel Whittaker, paying a certain amount for decades is dreadful because of compound interest, due to which he is against it.
The second and the most critical con of a mortgage is that you won’t have any stamp duty, and it won’t address how you would keep money to deposit for investment property.
Savings of your adults
If you have rich grandparents and parents, you can invest in property to get a home at your ideal location with minimal effort on the expense and hard work of your parents. Yet, they would have pressure to help you with mortgages and other miscellaneous payments.
However, not everyone is as lucky as you if they have such adults.
To rich parents and grandparents, it is advised that they should document everything if they are lending money to young adults of their family and ensure that they will repay them soon.
Conclusion
Housing crisis might cost Gen Z and Millennials to lose their wish to invest in property due to inflation and the increasing price of homes. They are required to rely on their generational savings, government schemes or super funds. The other option they have is to buy a property with their partner to make their Australian dream come true. However, these schemes and collaborative methods have their pros and cons, due to which they may need the help of buyer agents to understand how to invest in real estate in Australia in this period.
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