Greener Homes, Living Alone And Ongoing Rate Pain

Ray White’s chief economist, Nerida Conisbee says property price growth will continue next year and mortgage holders will need to “survive until 2025” amid expectations of higher interest rates for longer.

Ms Conisbee said strong population growth and a housing supply shortage combatted the impact of rising interest rates in 2023, leading to unusually strong price growth during a rate hiking cycle. The latest CoreLogic data shows home values have increased by more than 10 percent in the year to date in Sydney, Brisbane and Perth. Among the regional markets, price growth has been strongest in regional South Australia with 8.6 percent growth and regional Queensland at 6.9 percent growth.

“As interest rates head close to peak, it is expected that price growth will continue. At this point, housing supply remains extremely low and many people that would be new home buyers are being pushed into the established market,” Ms Conisbee said. “Big jumps in rents are pushing more first home buyers into the market and population growth is continuing to be strong.”

Ms Conisbee said interest rates will be higher for longer due to sticky inflation. “… we are unlikely to see a rate cut until late 2024 or early 2025. This means mortgage holders need to survive until 2025, paying far more on their home loans than they did two years ago.”

Buyers in coastal areas currently have a window of opportunity to take advantage of softer prices, Ms Conisbee said. “Look out for beach house bargains over summer but you need to move quick. In many beachside holiday destinations, we saw a sharp rise in properties for sale and a corresponding fall in prices. This was driven by many pandemic driven holiday home purchases coming back on to the market.”

3 key housing market trends for 2024

Here are three of Ms Conisbee’s predictions for the key housing market trends of 2024.

Luxury apartment market to soar

Ms Conisbee said the types of apartments being built have changed dramatically amid more people choosing to live in apartments longer-term and Australia’s ageing population downsizing. “Demand is increasing for much larger, higher quality, more expensive developments. This has resulted in the most expensive apartments in Australia seeing price increases more than double those of an average priced apartment. This year, fewer apartments being built, growing population and a desire to live in some of Australia’s most sought-after inner urban areas will lead to a boom in luxury apartment demand.”

Homes to become even greener

The rising costs of energy and the health impacts of heat are two new factors driving interest in green homes, Ms Conisbee said. “Having a greener home utilising solar and batteries makes it cheaper to run air conditioning, heaters and pool pumps. We are heading into a particularly hot summer and having homes that are difficult to cool down makes them far more dangerous for the elderly and very young.”

More people living alone

For some time now, long-term social changes such as delayed marriage and an ageing population have led to more people living alone. However, Ms Conisbee points out that the pandemic also showed that many people prefer to live alone for lifestyle reasons. “Shorter term, the pandemic has shown that given the chance, many people prefer to live alone with a record increase in single-person households during the time. This trend may influence housing preferences, with a potential rise in demand for smaller dwellings and properties catering to individuals rather than traditional family units.”

Australia’s home prices continue to grow, and while that makes them great investments, they are also some of the most unaffordable in the world.

That’s why first-home buyer schemes such as the First Home Owner Grant, the First Home Guarantee, and stamp duty concessions have become so valuable.

These programs are designed to reduce upfront costs and fast-track people into homeownership.

But the question many aspiring investors are now asking is can these schemes be used as part of an investment strategy? These government initiatives aren’t designed for investors, but they can still play a key role in your long-term investment journey if used strategically.

What the schemes actually allow

Every first-home buyer incentive in Australia is created to support owner-occupiers, not investors.

Whether it’s a cash grant, reduced deposit requirement, or a stamp duty discount, the catch is always the same in that you must live in the property for a set period of time. For example, the First Home Owner Grant often requires you to live in the property for at least six to twelve months, depending on the state.

The First Home Guarantee allows you to purchase with just a 5 per cent deposit without paying lenders’ mortgage insurance, but again, you’re required to live in the property for at least one year.

Likewise, state-based stamp duty concessions are only available for properties intended as a principal place of residence. If your intention from the outset is to buy a property solely for rental income, you won’t be eligible. However, if you’re open to living in the property initially, then transitioning it into an investment, there’s a path forward.

A strategy that works

Rentvesting has emerged as one of the most practical ways for first-time buyers to take advantage of these schemes while also laying the groundwork for a property portfolio.

The concept is simply, buying a property in an area you can afford (using the first-home buyer schemes to assist), live in it for the minimum required period, and then rent it out after fulfilling the occupancy condition.

This approach lets you legally access the benefits of first-home buyer schemes while building equity and entering the market sooner. Instead of waiting years to save a full 20 per cent deposit for an investment property, or getting priced out altogether, you get your foot in the door with reduced upfront costs.

Once you’ve satisfied the live-in requirement, the property can become an income-generating asset and even serve as collateral for your next purchase.

What to look for in a rentvestment property

If you plan to eventually convert the property into an investment, you need to think beyond your short-term living experience. It’s essential to buy a property that performs well both as a home and as a long-term asset.

That means looking at key fundamentals like location, rental demand, and growth potential. Suburbs with strong infrastructure, access to employment hubs, good transport links, and low vacancy rates should be high on your list.

A balanced price-to-rent ratio will help ensure manageable holding costs once the property transitions to an investment.

Established low-density areas often outperform high-rise apartment developments that flood the market with supply and limit capital growth. And ideally, your property should offer scope for future improvements, whether that’s a cosmetic renovation, granny flat addition, or potential to subdivide down the track.

Mistakes to avoid

There are a few common missteps that can undermine this strategy. The first is selling too soon. Some grants and stamp duty concessions include clawback provisions if you offload the property within a short period, which could see you lose the benefits or even owe money back.

It’s also a mistake to let the lure of a government handout sway your purchasing decision. A $10,000 grant doesn’t justify compromising on location, growth prospects, or property fundamentals.

Another pitfall is failing to consider the financial impact once the property becomes an investment. Repayments, tax treatment, and outgoings may change, so it’s important to stress-test your position from day one.

Lastly, beware of buying into oversupplied areas simply because they’re marketed to first-home buyers. Not all new builds are good investments. If hundreds of identical properties are being built nearby, your long-term growth could be seriously limited.

With the right approach, your first home can be the foundation for an entire property portfolio. It starts with using available government support to lower your entry cost.

From there, you occupy the property for the required time, convert it to an investment, and leverage the equity and rental income to fund your next purchase.

Many of the most successful investors today began with a single, strategically chosen property purchased using these exact schemes. By buying well, you can turn your first home into the launchpad for long-term wealth.

Abdullah Nouh is the Founder of Mecca Property Group (MPG), a buyers’ advisory firm specialising in investment opportunities in residential and commercial real estate. In recent years, his team has acquired over $300 million worth of assets for 250+ clients across Australia.