How to save for a home (and keep your social life)
Investments | 26/10/2017 |
7 min read
Remember when you could buy a three bedroom house with a rear garden within 20km of the CBD for less than $350,000? Yeah, neither do we.
According to CoreLogic’s latest property price data, the average Sydney house is now a whopping $1.08 million, with Melbourne not too far behind at $811,000, Canberra at $645,000 and Brisbane at $527,000.
Depending on the city in which you live, your income and saving capacity, it may take several years to save up for a deposit. But a journey of a thousand miles starts with a single step, so if your destination is property ownership read on.
Work out what you want
The first thing you should do is figure out what kind of property you’re looking to buy. Is it a three bedroom townhouse? A one bedroom studio apartment? A two storey McMansion? Or a few acres of land out bush to drop a shipping container on?
Once you’ve decided on the non-negotiable criteria for your property, you need to map out what area you can afford to buy into. Remember to take in factors like school catchments, access to public transport, proximity to amenities like shops, libraries, sporting facilities, public spaces and any future planned developments that could impact on the value of property in the area.
Work out how big a deposit you need
Once you’ve decided on the parameters of your ideal purchase area, you’ll want to investigate the local market. Jump onto realestate.com.au or similar and plug your criteria and location into a property search to check out prices.
Don’t forget to factor stamp duty into your purchase price. Stamp duty is a state-based tax on the transfer of title to property, and when it comes to real estate it can add tens of thousands to the cost of breaking into the property market.
Fortunately for buyers in NSW and Victoria, the governments in these two states have recently introduced stamp duty relief for first-home buyers.
In NSW, stamp duty does not apply to new and existing homes valued up to $650,000, or on vacant land up to $350,000. Concessions will apply to new and existing homes valued at between $650,000 and $800,000, and for vacant land valued between $350,000 and $450,000.
In Victoria stamp duty will not be levied on first-home buyers for properties valued at $600,000 or less. First-home buyers buying a home valued at between $600,001 and $750,000 will be entitled to a concessional rate of stamp duty.
Work out how you’re going to save that deposit
The cruelest part of the current housing affordability crisis is that property prices are rising way faster than incomes. Meanwhile, returns on ‘high interest’ savings accounts are anything but.
Sydney and Melbourne house prices have risen 13.7% and 13.8% respectively in the past year, according to CoreLogic. Incomes, by contrast, are rising at 1.9% per annum. You don’t need to be a rocket scientist to see that the goalposts keep shifting away from the average first home buyer.
On the savings front, standard interest rates are currently in the 1.4% to 1.6% per annum range. Jump through enough hoops and you could land yourself a rate around 2.8% at the very high end. But when you factor in inflation and taxes you’re just as likely to be going backwards at that rate.
How do you avoid your money losing value and save for a house deposit faster? You need your money growing in value at a higher rate than inflation. And the only way that’s going to happen in the current low interest rate environment is if you embrace some amount of growth-oriented investments.
It’s certainly not without risk, but the question you have to ask yourself is simple enough - do I remain in a high-interest savings account and continue to lose money with a high degree of certainty, or do I accept the possibility of some short-term volatility in exchange for potentially positive returns that can help close the gap?
Only you can answer that question. And the answer very much comes down to time. How much of it do you have at your disposal?
If you plan on using your money to purchase a property in, say, twelve months, then you should probably just use the best high-interest rate savings account you can find.
But if you’re first home deposit savings timeline is several years, then you might be better off by putting your money to work in a diversified portfolio, one that can spread your money across many different shares, bonds and cash-based products.
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