‘Don’t Buy’: Property Tip From An Economist

Posted by Daniel Joseph

Chris Richardson from Deloitte Access Economics had some advice to young Australians thinking about getting into the property market – ‘Don’t Buy’.

The logic of such a recommendation is bewildering. I’d understand if that ‘bursting bubble’ was a reality rather than a myth – you could conceivably wait for property prices to decline before snatching yourself a bargain. What we know of property markets is that they’ve been remarkably resilient to economic volatility. In our capital cities, that property bubble might deflate in a market downturn, but it’s very unlikely to burst. To read more on the topic click here.

Back to Mr. Richardson. Given what I note above, there’s an obvious cost to inaction. Now, I’m by no means arguing that affordability isn’t a pressing issue to young Australians. I do argue, however, that the debate often seems too heavily focused on Sydney. If a young Australian asked me whether they should buy in Sydney right now I’d be the first to agree with Richardson and advise they reconsidered. But Sydney represents only 20% of Australia’s market, although it does inspire 90% of property and, unfortunately, regulatory commentary.

Rather than recommending young Australians hold off on entering the property market, we’ve long advocated a philosophy of investing in a growth asset you can afford (for example, a house in Melbourne’s north or west for $500,000) and renting where you actually want to live (call it a two-bedroom waterfront apartment in Drummoyne for $700 per week). The rent you’d pay on that apartment is around half of your weekly mortgage payments had you opted instead to buy.

Suggesting young Australian’s are heeding the advice to invest and rent, 30% of investors in 2016 were first home buyers. It’s a strategy many of our clients have employed, with around 40% among Gen Y.

My advice to young Australians? Get informed, establish a qualified support network and take action.

Posted by Daniel Joseph, on 9th May 2017