Your ticket into the property market

The stories of 20-year-olds who own property in Sydney sometimes sound like urban legends - most of all to young people struggling to cover rent, petrol and HECS fees. But the dream is achievable and it is happening once again as property prices fall or stagnate.

It is still far from a buyers' market - at least for buyers of this age - but there are some sure-fire ways for young people to stake their claim to a part of Sydney. So is a 20-year-old better off smashing the piggybank, retrieving all the coins from the back of the couch and buying property now? Or is waiting a few years and saving a bigger deposit the better option?

First-home buyers have been on the increase this year. The Bureau of Statistics reports that 17.3 per cent of all home-loan applicants are first-home buyers. Cristine Castle, president of the Real Estate Institute of NSW, says 25- to 35-year-olds dominate the first-home-buyer category.

The combination of government grants and falling house prices has created an environment that encourages young buyers into the property market. House prices have fallen at least 10 per cent since the peak of the boom in 2003 and some experts believe the recent increase in interest rates may lead to prices falling another 5 per cent this year. However, entering the market requires careful planning.

JUST HOW YOUNG CAN YOU BE?

John McGrath, chief executive of McGrath Estate Agents, speaks from personal experience when he says it is wise to enter the property market early. At 19, he was already selling properties, buying one for himself soon after.

"If you have done your research and saved enough money, it is a great idea to get in early, even in your late teens," he says.

Consider that property values increase [on average] between 9 and 10 per cent per annum; this is usually more than you can save in the same period of time. Save from an early age and then buy only what you can afford. It becomes easier when you are in and you can always upgrade."

Castle agrees with McGrath. She recently sold an Oatley apartment to a 23-year-old woman and believes more young people should be following her client's example. "Your best bet is to get in when you are ready, but not to put it off. If you are ready at 20, all the better," she says. "You can either spend your money on luxuries that will provide you with nothing in the future or you can put your head down and get a jump start in life."

HOW TO SAVE

Property is the biggest purchase you are likely to make in your life. For young buyers, the deposit will most likely obliterate any savings. Start saving early and learn simple ways to maximise income with minimum risk.

"Once you have your goal, never underestimate the power of a successful budget," says Vaughn Richtor, chief executive of ING Direct. "Everybody should have one. A simple budget can substantially increase your financial prosperity. You must also find a suitable savings account. Look for one that offers no bank fees and high interest rates."

John Symond, managing director of Aussie Home Loans, says property should only be purchased by young people with adequate savings and some knowledge of the market.

"Saving isn't hard, but it requires discipline," he says. "Keep a strict savings pattern and do not spend your money on junk. If you are serious about purchasing property, your aim should be to have a minimum of 10 per cent for a deposit. There are no fast ways to save, so while you wait, do your research and seek guidance. Buying property can be great, but if you are not prepared, it can land you in serious trouble."

One young property owner is Ryan Ewart, 25, who bought a three-bedroom weatherboard cottage in Umina as an investment in 2003. He says saving for a property doesn't mean becoming a hermit. The property cost $300,000.

"There are three big purchases young people make: cars, holidays and property. You can save for one and still have a normal social life," Ewart says.

"I've been interested in property for a while, so the choice wasn't hard for me. Like anything, after your purchase, you get used to owning a house. Making payments, your responsibilities as a landlord and everything else becomes second nature. But you must cover your bases by budgeting for surprises like rising interest rates and future renovations. Getting advice from the right people, like solicitors, real estate agents, mortgage brokers and parents, is also important."

WHAT TO LOOK FOR

The more substantial your savings, the closer to the CBD your purchase can be, but it is likely to be a smaller property. If you are looking for an investment property, you are better off buying "within 15 to 20 minutes of the CBD", McGrath says. "These are the Sydney hot spots where you will see the quickest growth."

McGrath urges young buyers to remember that their first home will not be their dream home. "Think of your purchase as a ticket into the property market. Look for a mix of affordability and convenience. Don't blow your budget just to get a few steps closer to Town Hall."

In the Sydney suburbs of Leichhardt, Annandale, Lilyfield and Newtown, one-bedroom units can be snapped up for less than $200,000. With a deposit of $20,000, leaving a mortgage of $180,000, it costs less than $1200 a calendar month to repay over 30 years at current honeymoon and ongoing rates (6.89 per cent and 7.25 per cent respectively) with Wizard or Members Equity.

Last April, at the age of 23, Catherine Bullivant and husband Andrew, then 25, bought a "very unrenovated" two-bedroom terrace in Leichhardt.

As first-home buyers they qualified for the $7000 First Home Owners Grant and the less than $500,000 price tag meant they didn't have to pay stamp duty. "We couldn't have done it without those benefits," Catherine says.

She admits it's no palace, but they are more than happy with the purchase that met all the criteria she and Andrew had set.

"Andrew and I settled on our budget and what we wanted in a property and then went house-hunting every weekend. We knew we wanted to be close to the city but far enough away to still live in the suburbs. It was confusing at first, but we didn't rush ourselves. Leichhardt finally appeared as the perfect choice."

BUY FURTHER OUT

Estate agent Jim Aitken, of Jim Aitken & Partners, which has several offices around Penrith, says buying away from the city is the ideal start.

"Suburbs like Penrith and Rouse Hill are very popular at the moment. What you lose in the one-hour trip to the city you gain in quality of lifestyle. Your land and house size are bigger, and you are positioned closer to popular recreational areas like the Blue Mountains. Many of the people who buy here with the intention of moving closer to the city in the future often end up staying."

Within the Penrith area, three-bedroom houses can be purchased for $280,000 to $300,000, while the same type of house near Campbelltown will set you back $230,000-plus.

Jane Bugeja and partner Paul Smyth know what Aitken is talking about. In 2003, the couple decided on a $290,000, three-bedroom house in Werrington, about 5 kilometres east of Penrith, with the help of the $7000 First Home Owners Grant. For Bugeja, then aged 23, saving for a house was easy once she had done her maths. "When we did all the sums, we found we were spending around $300 per week on entertainment. It was money down the drain. By creating a budget and cutting back on the unnecessary expenditures, buying property became affordable."

After a few months searching, Werrington County became the obvious choice for the couple. "All the amenities we need are in Penrith, it's a safe and quiet neighbourhood, our parents are close by and we get more land for our money in this area."

LOANS AND ASSISTANCE

Young first-home buyers in NSW get a head start from the State and Federal governments. The First Home Owners Grant Scheme (FHOGS) awards those eligible with a $7000 grant while the First Home Plus Scheme provides exemptions on transfer and mortgage duty on homes valued under $500,000, and concessions on those between $500,000 and $600,000.

Those intending to rent out their first property immediately are not eligible for the grant. The home must be occupied by the grant applicants for the first 12 months. Ewart, who is renting out his Umina property, says there are still incentives for young people looking to purchase property as an investment. "Your renovations and repairs can be claimed as tax deductions. It's a good way of improving the property at a cheaper rate and even more of an incentive if you one day intend to live in the property. The more ways you can drive your dollar further, the better, especially for young buyers."

Symond says there are Colonial and Westpac home loans tailored to young buyers, but also cautions against getting in too deep. The current cooling market combined with available incentives may be just enough to push young buyers in now - however, Symond strongly discourages doing so with a no-deposit home loan and advises having a back-up plan in case of trouble.

"Parents can provide a deposit gap, adding tens of thousands of dollars to their children's deposit. It is a simple case of peeling off equity from their property. They can also put their names on the title as a security measure. This prevents young adults from destroying their credit rating early in life if they get into trouble. Parents should be giving as much advice as possible to children considering property.

Remember, if you're young, you have much of your life still ahead of you, so make sure you weigh up the risks with the benefits before you purchase property."

THEY WERE ONLY NINETEEN

Aussie Home Loans chief John Symond bought his first property in 1967 at 19, with help from his father and uncle who were developers. "I bought a one-bedder in Homebush on a discount, paying $12,000," Symond says. The next year, Symond bought in Alexandria with a friend. "We snapped up two two-bedroom semis for $8000 each." They sold them unrenovated a year later for $12,000 each. "It was that windfall that really got me motivated to work in the property market."

Coincidentally, McGrath Estate Agents chief executive and founder, John McGrath, 42, also bought his first home at the age of 19, in 1984. It was a $96,000 "unliveable mess" in Paddington, but it was a start. His advice to young people considering entering the market is do it, but set realistic goals. "I lived in a low-rent studio apartment so I could fund the renovation of my Paddington property. It was one of the most rewarding things I have done in my life," he says.

24th May 2006

Source: SMH