Property Pressure: Buy Now Or Wait?

Do you remember it, like mid pandemic, they were like talking about our housing price is post pandemic absolutely going to go through the floor. It was plastered across the front page of literally every major publication news publication that is in the country. And then now they're like, oh, what do you mean, we didn't say that. I don't know what you're talking about. Market is wild, Millennials can't

get in and they're eating too much avo toast. Again, like it's just the media likes to hype things up, and at the end of the day, the market comes down to two things. Supply demand. That's it. You hit the nail on the head before. Supply is low, demand is high. We all want the same thing, we're all working towards similar goals, which shifts the price of those things up right, And it just makes logical sense. Things are more expensive if there's only one on offer at

the moment. Cost of can of coke going to be the same whereof you go because it's in abundance. Cost of a very expensive fancy bottle of Grange wine, well, it depends where it is and how many are out there.

Is it on a corner block like who knows? But it's one of those things where I think too often we play too much into what the media is saying, but then also take it too seriously, like the media is there for entertainment purposes, Like, obviously there's some level of truth to it, But do you really think they're reporting on housing prices because they're just so worried about your personal education? Georgia King, Well, they probably want your

eyeballs for that reason to sell advertising. Ah haha, same page. Keep listening to our podcast and listen to our ad So today we are going to talk about our values and how they align with external pressures in society and the media, and what is happening in the market. And we're going to give you some things to consider when deciding whether you're going to purchase a property or do you do it now or do you wait and save

for a bigger deposit. We're going to talk about inflation, We're going to talk about available grants, increasing land value, and so so so much more. G King, Are you ready love it?

often be better in some personal circumstances. I think it's quite interesting as well, because you know, we just talked about having your own values and aligning to your own things, and then we're like, but it's the Great Australian dream like, let's just stick to our own dreams, not like the

Great Australian or Great American dream like. Unfortunately, everything in the entire world has changed since that was the reality, and we can't expect the values of somebody in the literal fifties to be guiding what we want today.

Like somebody paid for an entire other house. They were like, it was so nice they needed to buy it twice, like insane to think obviously it was a bit more pricey, Like that's why all there, because we were all herby, but four hundred thousand dollars over what it was worth Like that to me sounds insane. So they did say that the property market would actually end up bottoming out, but it hasn't happened yet. It is actually starting to boom.

In fact, in the quarter up to December twenty twenty one, so the last three months of last year, the weighted average of the eight capital cities residential property price index rose four point seven percent that quarter and rose twenty three point seven percent in the last twelve months. That means property in general g increased by twenty three percent, which pretty good investment if you have the ability to

actually get into that investment asset class. The total value of residential dwellings in Australia rose five one hundred and twelve point six billion dollars to nine thousand, nine hundred and one point six billion dollars this quarter, and the mean price of residential dwellings actually rows forty four thousand dollars to nine hundred and twenty thousand, one hundred dollars. Like that is so far out of the scope of so many people's budgets, it's not funny. Like let's break

this down a little bit more. G you want to buy a million dollar property great, that seems like a wild number, but in most capital cities, a million dollars is the mean, right, you want a full twenty percent deposit. How long is it going to take you to save

two hundred thousand dollars the rest of my life? Yeah, But like that's just it is so far out of touch with what is actually achievable, especially when the average salary is eighty two thousand dollars a year in Melbourne, Like, eighty two thousand dollars, What can you save each and every single month. Maybe if you're lucky, you're saving like

two thousand dollars on that salary. That's assuming that you don't have any dependence, no personal debt, and the ability to save, which is a privilege that is denied to many of us. Like so many of us have financial commitments or think about the amount of people who are in our community who have to spend money on medical expenses and medications, and like it's just so crippling to me mentally to look at that and go, that's just so unachievable.

So it's it makes sense, but it's just really, I guess disheartening to see as somebody who you know, I run this community and I want all of you to be successful, and so many of you have the value of purchasing a home. It breaks my heart to think that, you know, you're not going to achieve your goals. But at the same time, it doesn't necessarily mean that you're

behind financially. And I'd hate for you to think that, oh my gosh, if I can't achieve this goal, i haven't been able to make it or I'm not successful, because that's not the case at all. I think we've defined success based on somebody else's history, and now owning property is more of a luxury than a necessity or a hygiene factor as it used to be. In the same way that you joke about, you know, owning a yacht, like it might become the norm to not be able

to afford it. And there are actually lots of cities around the world where owning property that's not normal. Like you look at New York, basically nobody there who is living there lives in a property that they own because they genuinely can't afford it. So it might be becoming our new norm, and that, you know, it's disappointing when accessibility was so accessible historically. But I just, yeah, breaks

my heart a little bit. But let's get into a little bit of the background of what has actually been happening up until now. And I've got a few dot points, so let me run through those for you Gking. First things first, is that housing turnover, which is the annual amount of homes that are for sale as a percentage of the total dwellings that exist, trended lower from late twenty fifteen as credit and lending conditions ended up tightening.

You know how we had the whole Royal Commission and we looked into it, and therefore it was harder to get a home loan, and then housing affordability became more challenging, and transaction costs like stamp duty actually became increasingly expensive as prices rose. Then national turnover reached a record low in June twenty nineteen, when only three point seven percent of Australian homes transacted over the year. Since the credit policies have now loosened and mortgage rates have now reduced

a record lows. Thank Fully, this has encouraged Australians and you know, our community to participate in the housing market, which has been good. So it's not as though it's just like the last twelve months that have been hard. It's actually been the better part of seven or eight years.

And then to add insult to injury, a higher rate of household saving since March twenty twenty has boosted consumers deposit levels, which is really good, but it's also boosted their mortgage serviceability, which means they're over paying for property

because they just want to get in. While government incentives like the stamp duty concessions that are currently on offer and deposit guarantees have also supported demand, so it makes sense that people are trying to pay more for properties because they're like, Wow, I've got this extra casholder that I've saved over the panide and now I want to

put it towards a house. And if there are enough people doing that, that's obviously going to boost prices up and change the way you know, supply and demand works. And then by the end of August twenty twenty one, housing turnover had reason to five point six percent, which is the highest rate since December two thousand and nine. So all of these base is saying that it's not

slowing down. Unfortunately. Sorry sorry sorry, but imagine if just not eating smash Diver was actually the answer, that podcast would have been like three seconds.

media didn't have heaps of other content to push. But also those stories are far more interesting than you know, Victoria Devine who got to work from home and now just couldn't go to the office. And I think that there are so many stories similar to mine where you know, and I feel massive guilt for that because I'm like far out, like I, you know, and I tried to

do as much as I could. But I was okay through COVID and arguably was in the incredibly privileged position of being able to save a little bit more during that period of time because it wasn't paying for parking, wasn't catching the train, you know, I wasn't having to put fuel in my car because I was working from home and the type of job I have is online in your ears, Georgia, and it meant that I got to work from home. But that privilege wasn't something everybody experienced.

And the fact that so many people were, you know, unable to work doesn't take away from the fact that there were so many people who just had corporate jobs who you know, maybe were planning on buying a house in the next five years. Their additional savings meant that they were able to buy it three years early. So I think once we weren't stuck in our homes anymore, people were like, you know what, I've got so many

different values now. I think there was a massive increase in the amount of people who were like, no, I actually do want to buy a house. I didn't think I wanted to, Now I do. I don't want to live in an apartment. I want space, I want land, And that seems to be for a lot of people buying property far more preferable people are now buying further out, pushing out regional property prices because they're like, now I can work from home. G I've learnt so much about it.

So I think that as much as we visually see so many people who had suffered through that, and like, there's no downplaying that, it's absolutely messed up when it comes to the property market. There are so many people who are first home buyers or second home buyers or even third home buyers who got to sit in that little white collar bubble where they weren't actually financially impacted

in any way, shape or form. In fact, they were benefited, you know, not in general because I think I played on everybody's mental health, but financially benefited from staying home.

So people who were lower income earning or you know, front facing or didn't have white collar jobs ended up suffering far more than those of us who were, you know, in jobs where we weren't very lucky to be able to carry on business as usual from home.

property as well. So you don't actually want to look directly at the price and be like, oh my god, like that's going to go down twenty or thirty thousand dollars in the next few years. You actually need to look at it over the long term and go, well, what's just going to be worth in ten years? What's my actual intention on purchasing it? And I have lots of conversations with my clients about this because so often they go, vi, when's the best time to buy property?

And the answer to that question is when you are personally ready. It's not when the market is ready. It's not when the market is low, it's not when the market is high. It's actually when you personally have the financial stability to service alone and actually take that on with minimal risk. So from my person perspective, I have told clients before buying the peak of the market. Are you saying you're ready right now? Yep? Great, No problems

let's go. Because even if you are paying twenty or thirty thousand dollars over what you feel like it should be worth, you're securing the asset that you wanted for the long term, and that's going to pay off over

the long term. So from my perspective, like, there is a risk of buying overvalued land, But the real question is like how long are you planning on buying this, and should you really be buying an asset that you're planning on disposing of after two or three years, Like is that actually a good idea for you in your

personal situation? And maybe it is, I don't know. But at the end of the day, land value is always going to be higher because it has far more potential and ability to grow assets essentially than an apartment.

get into that. So it's interesting to actually see how it's valued, but Essentially, if you're buying a block of land, it's you and only ug king who makes the decisions about that block of land, pending council approval obviously, But if you went and bought a one bedroom apartment in the Melbourne cbit, like, really, how much can you sell that for when there's such a saturation of similar offerings on the table at that point in time to your offering? Yeah,

does that make sense? So like there's volume, but then there's also the inability. You can't just put another bedroom on. What are you gonna do? Knock into somebody else's kitchen? Like, rude, don't do that. It's rude, It is illegal, but like mostly rude.

you could release it out, Like, there's obviously pros and cons to both, and like, you know, if you ask someone who grew up in the fifties, they'll be like, buy land, sun, Like that's a good idea. That's the only way you go. Well, it's not the only way. But what I want is to be educated and understand why one might be valued at more than the other, and then make an educated decision as to which is most accessible for me, in which is going to work for my situation. For a lot of us, an apartment

might be the perfect fit. It's not to say it's bad. There's just a number of things that I would take into consideration, and if that's a decision that you personally are making. There's an entire episode on the Property Playbook about land versus apartments, So go and listen to that because I've got a few tickets on myself. I think that's a pretty good podcast as well.

It doesn't protect you. Gee, You've got to pay for it because it protects the lender. Like it's lenders mortgage insurance that they're based asking you to take out because you're not paying a full deposit. And when we say full deposit, it means that you're not paying that full twenty percent that most banks ask for when it comes

to mortgages. And do you know, there are actually a fair few people who don't actually have to have a full twenty percent deposit, like dentists and doctors and accountants, like they can actually get home loans without having to pay a full twenty percent because they have like a fancy profession. So if that's you, talk to a mortgage broker sooner rather than later because they can work that out for you. So fancy right. I did not make the cut because financial advisor is not nearly as legitimate

as an accountant, just so you know. But essentially, l am I, it's the lender taking out any insurance policy against you for the risk of not recovering the full outstanding loan balance if ugking can't pay all your mortgage back, which makes a lot of sense as to why they

would want it. But let's do a little example. So, as I said before, if you're borrowing more than eighty percent of the purchase price, so you don't have it the twenty percent deposit, that's the flip side of the coin you're going to need to usually pay LMI, except if you're fancy pants to calculate an LMI premium, it's so simple, Gking, it's not. Actually, you can just google LMI calculator and then your state and it will come

up and you can just do it yourself. But to summarize it, you're going to multiply your lm I rate by your loan amount. So if you want to buy a house, G. That's worth let's say five hundred thousand dollars, the bank is typically going to make you pay that twenty percent deposit, so of five hundred thousand dollars, that would be one hundred thousand dollars. But let's say you've

only saved fifty grand. You're like, look, I have fifty grand, but I really want to get into the property market, and you've got sufficient income, so they're like, look, looking at your income, you can pay back that mortgage. You might be able to get LMI and actually take out this insurance, pay fifty grand, which is half the deposit that you would have usually required, and then they would lend you the four hundred and fifty thousand dollars that

you would need to purchase your home. So G, you've got your fifty thousand dollars deposit right, and you need to pay LMI on a five hundred thousand dollar property you're going to end up in Victoria. I have calculated the costs to be twelve thousand, one hundred and ninety two dollars. You would then need to pay thirteen hundred and seventy three dollars in government fees. There's like a few optional costs that I would recommend budgeting into that.

So I'd probably budget about one thousand dollars for a conveyancer and then maybe like four to six hundred dollars for a property inspection. You know how I always talk about building and pest inspections being really important. And then, because you are purchasing under five hundred thousand dollars, so you're taking four hundred and fifty thousand DO loan, you don't have to pay any stamp duty at this point

in time, which is very sexy. Whereas if we compare that and you're buying the million dollar property because that seems to be the average here in Melbourne and in Sydney, and you've got one hundred thousand dollars in savings, you'd actually pay fifty five thousand dollars worth of stamp duty and then forty three thousand, seven hundred and ninety eight dollars in LMI, and then you'd have twenty five hundred

dollars worth of government fees. And then from my budgeting or high level budgeting, you still have legals and conveyancing at one thousand dollars in property inspection between four hundred and six hundred. Right, So the amount is massive and elm I can obviously creep up. But the thing about el am I is so many people scoff and go, oh my god, Victoria, I'm not going to pay forty three thousand, seven hundred dollars in LMI. That's insane. You go, yes, but like, what does it mean to you to be

in the market earlier? And would you pay that amount of money to not have to spend the next you know, ten years potentially saving up another one hundred thousand dollars to have that full twenty percent? Like is this worth it for you? And at the moment if you see, you know, doing some not so complex but quite straightforward

calculations we've seen over the last twelve months. We said it earlier, twenty three percent property growth twenty three percent return on a mortgage, which on average at the moment

is two point five percent. That's pretty good numbers. So I feel like too many people look at ELMI and go, oh my gosh, I'm never going to pay that, it's a waste of money, whereas some other people look at it and go, no, that's the cost of me getting in the market today, and I can make money laiter down the track and I can make it back, and it might be okay for some people. It's just far more feasible because that l am I you don't have

to pay it upfront. It can actually be rolled into your mortgage, which means that paying it off is much easier than often saving for a lot of people, because mortgages often act as like a forced savings plan in a way. I'm not here saying that, oh my gosh, you absolutely should be paying l am I or not, because,

to be honest, it's personal preference. Like it makes me feel arguably quite uncomfortable paying for something that you know, Steve and I could save for and if it took us a little bit longer, which it did, g to save for a property, that's what we wanted to do. But as a financial advisor, if I weigh up the pros and cons, there are absolutely circumstances where for clients paying l AM I was absolutely in their best interests.

And then there are circumstances where I'm like, no, mate, your cash flow is so good, just save for a few more months and you won't have to pay it. So it's really really personal. But if I was you and I was thinking about using LMI, I would be googling an LMI calculator and how that works in my particular state. Most banks have them, so use whatever one works best for you.

the banks that'll lend you, these are the ones that won't. Like, mortgage broking can actually be relatively complex, especially when it comes to the semantics of one the loan, but then to the loan functionality, like do you want offset or redraw? How do you want at to work? Are you buying the property outright for yourself you're buying it in a trust?

Like what does this actually look like for you? And then to add insult to injury, it's obviously far harder for people who are self employed or have just started their own businesses to get loans, and there are far less banks that are willing to lend you in that situation as well, So it can be really frustrating. And that's why I think getting involved with a mortgage broker, even if you're not ready to buy, I think is

really smart. Because I've had a couple of clients, and I keep saying clients g because I have a mortgage broking company now and spoiler, we are having two very gorgeous women join the team as of the first of July, who I can't wait to introduce to you. So I have had clients come to me g and go, oh my god, Bee. I wish I'd spoken to a broker earlier. I have been busting my life away trying to save for another two years when I could have just paid l Ami and I worked it out. That would have

been better for my situation. So it all depends on what you know circumstances you're in. But I genuinely believe in having a chat with a broker earlier and establishing that relationship up front. Like we've spoken about it before on the podcast, but I think when was the last time we spoke about the Hour of power? George King would have been it's been a while, but that still exists. You're breaking it back. No, it's still been okay, well

when anyway, I just stopped talking about it. But the Hour of power essentially is this hour where you get a dedicated hour with a mortgage broker to sit down, do your serviceability, do a savings plan, organize your budget, organize your cash flow to make sure that you're in the best possible position to purchase a house without feeling like you're overwhelmed or just trying to get that fifteen minute free conversation with a broker that'll actually sit you

down and be like, right, this is exactly the plan you need to follow to get into your first home. This is what we can do, and this is how we can do it. But the hour of Power is basically like the spoon fed version of getting into your first property with a broker on your team. But you do pay for that session, and I think that is absolutely worth its weight in gold. Like everyone who's done it has always said like, I am shocked that this

is so good. But back to your question before, when you're saying can you get in with five percent, Yes, you'll just pay more el am I so on that five hundred thousand dollar property, instead of paying that twelve thousand dollars in l AMI, you'll now pay sixteen. That's anous So it makes sense, right, not too shabby, Not too shabby, according to g Okay.

here in Australia. It usually has to be like a mum or a dad. It can't be a sibling or an aunt or an uncle or even a friend who is really kind that can't work. It has to be a family member and they offer up the equity in their own home as additional security for your loan. So it might be you know, one hundred percent security if you know they are boomers and brought their house for the twenty two thousand dollars in nineteen sixty eight. Now

it's worth three million dollars. But a guaranteur is essentially going to guarantee that you'll pay the money back, because as much as they're offering up their equity, they're also putting on the table that if Georgia King doesn't pay off her loan, they'll take the brunt of that and take over the repayments before they have to recover it from somewhere else. So it is a lot of responsibility

and you do need to think about it. A guarante loan is a privilege that most people don't actually have, but if you're in the lucky position of having it, please don't feel guilt. Like this community is not about going, oh my gosh, I can't believe they have it's so easy, because you never know somebody's circumstances and just because they had the property thing down pat does not mean their entire life is sorted on the flip side. And this

community is all about lifting everybody up. So like, I want to celebrate if you've got a guarant tour loan, even if it's not something that's completely accessible to me. I think it's important to understand it. But I do feel like there has been some very unnecessary commentary recently about people calling other people who have guarant tour loans entitled or it was easy for them, because just because the deposit part we're skipped does not mean that paying

off a mortgage for anyone is easy. So to summarize all of that, a guaranteur can be a very good way to get into the market. Again, it means that you do have to have a parent in your life that is financially secure enough to be able to offer that up. It does mean that they can't sell that property while being a guaranteur. But the cool thing that I think a lot of people don't realize about guarant tour loan is they're not the guaranteur on that loan forever.

That the guaranteur on that loan until you pay enough off to meet the deposit, and then they can be released as a guaranteur. So I've seen a lot of people, especially my clients who get guaranteur loans, create like a little contract with their parents to say, all right, in two years, once I have paid down X amount, you can be released as a guaranteur. Because the parents are like, look, I just don't want this going on forever because I might need to retire, or I might want to access

the equity for my own wealth creation. So I think that that's pretty cool. But then the other important thing to note is that the guaranteur has absolutely no requirement to make any repayments on that loan on your behalf.

But if you're not able to make repayments and the bank's been chasing you, Lalenda will then turn to the guaranteur to make repayments, which kind of makes sense because they said Gking was good for it, and then maybe Gking was being a bit naughty, so they're going to go to the person who said she was good for it. But in this way, it is completely possible to get a home loan even when you have a small or maybe even no deposit.

the various schemes. The first one is the First Home Guarantee, which used to be called the First Home Loan Deposit Scheme, and right now they have thirty five thousand places each in every single year available, and it allows first home buyers with deposits as low as five percent to qualify for a home loan without having to pay that pesky LMI.

So if you have five percent deposit, you won't have to pay that what was it, sixteen thousand dollars in LMI if you're paying for a five hundred thousand dollar property. So essentially the government will act as the mortgage insurer. For example, if a borrower provides a deposit worth five percent of the property value, the government's actually guaranteeing fifteen percent of that property value, making the risk to the lender exactly the same as if the borrower provided a

twenty percent deposit. It's kind of good, very neat. The next is the Family Home Guarantee, which is a little bit more niche. There are only five thousand additional places a year under the Family Home Guarantee from the first of July twenty twenty two to the thirtieth of June twenty twenty five, so it hasn't even started yet. It's coming up in July. This is an initiative that exists to help eligible single parents with dependents purchase a family

home sooner, which we love. And under this scheme, single parents can buy home with only two percent deposit without having to pay elamite. How good's that?

I really like that one. The next one is the

Regional Home Guarantee. Double the places, so ten thousand places under the new Regional Home Guarantee from the first of October this year to the thirtieth of June twenty twenty three, So this scheme is going to be open to first home buyers and anyone who has not owned property within the last five years, which is an interesting I guess addition to that guarantee, and the legislation for that is currently still pending, so we're not sure if we'll get that one, but we will know very soon and is

very likely to pass, otherwise I wouldn't have bothered to mention it. Gking on the pod brilliant. And then the next is the first Home super Saviors scheme, which, as you guys know, I think is a pretty good money win. The first time Super Savior scheme, if you haven't heard about it before, allows first home buyers to save their home deposit for their first home inside their super account, which means that you get to take advantage of concessional

tax rates. Right, So, as we know, tax rates inside superannuation of fifteen percent, but most of us will probably be paying thirty two and a half cents on the dollar for tax, and that means that you get a pretty good rebate. So under this scheme, the government has increased the total amount of savings borrowers can release from Super from thirty thousand dollars which was over two years, to fifty thousand dollars over three years, which I think

is far more. I don't know. That just makes a lot more sense to me, G. Because who in their right mind in Melbourne or Sydney only has thirty thousand dollars for a home deposit.

thousand dollar example in my head. If g you were on a seventy thousand dollar income and you were planning on saving you know, over three years for a home deposit and wanted to get to about you know, thirty thousand dollars, if you did that inside superannuation on a total of like thirty thousand dollars, by contributing fifteen thousand dollars each financial year after three years, you would have saved six two hundred and ten dollars more a standard

saving account. If it was in your suit it was in your superhot instead of if it was in your savings account. So to me, that makes a lot of financial sense to consider it. If you're planning on buying your first home. There are obviously a few caveats, like you can't pull it out without proof that you are purchasing a property, and there's a higher marginal tax rate if you do pull it out, so you can't just like whip it back out without you know, giving them

some money. But if you're planning on purchasing a property, and hypothetically, if it was coming up to the end of a financial year, you could dump money into superannuation if it was aligned to your values in the middle of June, and then the same in the middle of July and make both financial years and then buy a

house within a few months. So technically, if it's pre June right now and you're listening to this podcast, you can actually make use of both of those fifteen thousand dollars amounts before the end of this actual calendar the year. Little hack, well hack, if you wanted to do it only from experience, my love.

it's the McDonald's fifty cent cone. But what are they now? Like a dollar something else? I remember when they were were they two dollars for a little while there?

sit down, it's now worth two million dollars. And I am not getting into the semantics of this argument just because you could afford it, but it's important to understand because the most well known measure of inflation that is not a McDonald's twenty cent cone is the consumer Price index, weighted average of the price of thousands of different goods and services that are commonly purchased by households, which are then grouped into literally eighty seven different categories like meals

out and takeaway food, and women's clothes and domestic travel. And that's how we get to CPI. So I've probably said that in passing before, but essentially CPI is consumer price index, and then the two largest items in CPI are the cost of purchasing newly built dwelling and rent go figure, which collectively make up about fifteen percent of

the index. So essentially that is what inflation is and how it is calculated and why it is calculated, and TLDR it is how much things increase each year in price.

two as well. Right, so, you might not be able to afford a home, but we now have the ability to travel the entire world, while my grandmother she never got that opportunity, you know, Like, I feel like we are so connected and technology has advanced, and there are so many different things in this world that are gorgeous

and lovely, and we should be embracing. I think that too many times we weigh our self worth on whether we can afford a property or not, and that's a really ridiculous measure of how good we are in this world. So from my perspective, property means absolutely nothing. It's actually about your wealth creation journey and what you're doing to save and invest and create a life for future you. And if that involves property, fantastic. If it doesn't, whatever,

But it also can feel really terrible. G If you just can't get into the market, EG me all right, but talk to a good broker. I think that's it. Okay, go to our website, introduce the self to Kate or Nicky. Both of them are absolutely brilliant, and we'll put you in the best possible position perfection.

We will see you on Friday, friends,