What’s happening in the Australian construction industry?
Lets Review the Challenges facing Australian housing construction
We think it’s fair to say that nobody will be surprised to hear of the tumultuous couple of years we’ve experienced in the housing construction industry here in Australia. It seems like every few weeks we’re hearing of another construction company going under. And the stats show the sector is sadly still suffering the highest rate of insolvencies of any industry. The corporate watchdog Australian Securities & Investments Commission (ASIC), reported 2832 construction industry insolvency appointments in the 2024 financial year. A depressing 28% more than the previous year.
It’s why the Albanese Labor Government has focused on housing in the 2024–25 Budget with its promise to invest $90.6 million in the construction and housing sector. In this housing construction industry update, we’ll explore recent trends, challenges, and opportunities for investors, particularly those in the Australian Defence Force (ADF).
As property investment specialists, the team at Capital Properties know how vital it is to support the construction industry and educate investors on how to navigate this tricky market. It’s our job to make sure you know how take advantage of property investment opportunities to secure long-term financial future.
Book your Capital Properties Discovery Session to meet with our expert team and make sure you’re primed for investment opportunities. And remember, Capital Properties clients have access to our Property Investment Tools & Apps and Pinnacle Support Program.
On the go? Here’s 30 seconds of take outs:
- 2024 saw an increase in construction industry insolvency
- The government promised $90.6 million for the construction & housing sector in the 2024–25 Budget.
- Out of$258 billion worth of work in 2023, only $81 billion was in housing construction.
- Experts say that that 205,000 new homes per year are required but less than 175,000 new homes were built in 2023.
- Opportunities in the market:
- Housing shortages means increased demand
- Population growth
- Net zero targets
- Issues facing the market:
- Supply chain disruption
- Higher material costs
- Skilled labour shortages
- Inflation and the cost of living
- Lower housing approvals & net zero
Keep reading >>
Current housing construction situation
It might sound counterintuitive to hear that Australia’s overall construction industry is actually experiencing growth. The engineering sector, which focuses on building infrastructure for transport, energy, industrial, etc., has grown by 8.3% this year, and accounts for around half of all construction activity in Australia. However, home building isn’t following the same trend. Out of $258 billion worth of work in 2023, only $81 billion was in housing construction.
This stalemate in housing construction, combined with other factors like increased population growth, has led to a significant shortage of rental accommodation which many are calling “the housing crisis”. Economists at the Housing Industry Association (HIA) have said that 205,000 new homes will be required each year to meet demand. With fewer than 175,000 new homes built in 2023, we’re falling well short of what’s required.
On the 8th of May 2024, Julie Collins, the Minister for Housing, Homelessness and Small Business said: “Our Government knows that building more homes is the best way to address Australia’s housing challenges, which is why we have an ambitious national target to build 1.2 million homes.”
Issues and opportunities in Australian housing construction
So, let’s take a closer look at the current housing construction situation. Firstly, there are great opportunities for growth due to:
- Housing shortages = increased demand
- Population growth
- Net zero targets
But the industry is facing significant issues, including:
- Supply chain disruption
- Higher material costs
- Skilled labour shortages
- Inflation and the cost of living
- Lower housing approvals
- Net zero (yes, it’s an opportunity and an issue)!
We’ll examine each of these further below.
FACTORS DRIVING HOUSING CONSTRUCTION DEMAND
At the time of writing (October 2024) it’s projected that 167,000 new homes will have been built this year. And the expectation is that it’ll average out to approximately 180,000 per year thereafter. This falls well short of the recommended 205,000 homes required to meet demand. Of course, this varies across different states and territories, but some states like Queensland are feeling it the most.
Source: https://www.amp.com.au/insights-hub/blog/investing/econosights-state-housing
Population growth
The Australian Bureau of Statistics (ABS) confirmed that Australia’s population reached a record 27 million earlier this year – and it shows no sign of slowing down. Almost 650,00 people arrived in Australia in the 12 months to March 2024. Australia’s population grew by 164,635 in the first 3 months of the year alone – 133,802 of those from overseas migration. This has led to a severe housing shortage, particularly in urban rental accommodations, driving rental prices higher and putting immense pressure on the housing market.
The ABS have predicted that overseas migration could continue to increase Australia’s population from 27 million in 2024 to somewhere between 34.3 and 45.9 million people by 2071.
Net zero targets
The Australian Government has developed an ‘Infrastructure Net Zero’ Initiative, working with government and industry stakeholders to create policies and encourage innovation to achieve the decarbonising of infrastructure. With support from organisations like the Australian Contractors Association and researchers from the University of New South Wales (UNSW), a national reference guide has been created to help move Australia towards its net zero target.
This innovation will of course come at a cost (estimated at $1.3m) to achieve new emissions targets, and specialist knowledge will be required. So, yes, this offers an opportunity for innovation and growth. But, in an already struggling industry these new challenges will be another obstacle to surmount.
AUSTRALIAN HOUSING CONSTRUCTION CHALLENGES
Supply chain disruption and higher material costs
The pandemic highlighted major issues with Australia’s construction supply chains. Customers were more understanding of the delays and shortages of critical materials in 2020, but the recovery isn’t happening as quickly as anyone would like. With global economies still reeling, the supply chain disruptions look set to continue for some time yet.
Materials like timber, steel, and concrete are still harder to come by, and higher shipping and production costs are continuing to drive up prices. The Hays Construction Industry Report Australia FY24/25 reported a 5.9% increase in overall construction prices in last year. These rising costs affect project timelines and budgets, making it difficult for developers to maintain a profit.
Skilled labour shortages
The Australian construction industry is facing a severe shortage of skilled workers. The above-mentioned Hays Construction Industry Report states that Australia will need 90k new construction workers – immediately – in order to meet the government’s housing targets. Build Australia puts the figure closer to 130,000.
In the Feb 2024 ABS ‘Job Vacancies Survey’ construction businesses reported almost 280,000 job vacancies across the sector. That’s why the government announced a spend of $90.6 million in the 2024-2025 budget to increase the number of skilled construction workers. This includes a program for incentivised (or free) TAFE training and encouraging migration of skilled workers.
Interestingly the Irish Government had launched an expensive advertising campaign aimed at encouraging skilled labour to “build back home” to fill a shortfall of 50,000 jobs in Ireland. So, it will be interesting to see if our government’s plan to encourage migration of skilled workers will work.
Either way, these solutions certainly seem like long-term fixes to an immediate problem.
Inflation and the cost of living
Many Australian households are barely coping after 13 (almost) consecutive interest rate hikes in 15 months since May 2022. Rents are at an all-time high and essential items such as food, utilities and mortgage repayments have almost doubled in some cases. That means that people are more likely to stay in their existing homes, rather than risk applying for mortgages at higher rates. And many would-be homeowners have been priced out of the market.
Elevated borrowing costs also means that some developers have been cautiously awaiting more favourable interest rates before investing or re-investing.
Lower housing approvals
The combination of higher material costs, labour shortages and high interest rates result in less developers applying for new housing (dwellings). In fact, new dwelling approvals in Australia are at the lowest they’ve been for 12 years. For the year to June 2024 almost 163,000 houses and apartments were approved. That’s a drop of 8.5% on the previous year and the lowest we’ve seen since 2011-12.
Michael Bleby, Deputy Property Editor from Australian Financial Review (AFR) wrote in September 2024 that Labor’s hopes of building 1.2 million new homes in five years are fading fast. Master Builders Australia (MBA) estimates that only 1,033,962 new homes will be built over the five years to 2029, which is down more than 53,000 from the 1,087,325 total it predicted in April.
Outlook for Australian housing construction
In the Housing Industry Association (HIA) “Housing Australia’s Future 2024 Report”, they say: “this analysis has defined a range in which building activity will need to sit over the next thirty years. This is to account both for population growth and for the various factors defined throughout this report that influence housing demand. At an Australia-wide level, it is estimated to be between 190,000 and 275,000 new homes per year.”
The government is under pressure to relieve the current ‘housing crisis’ and the budget reflects this. With the Housing Australia Future Fund and the National Housing Accord they’ve allocated more than $9.5 billion to housing in this financial year. The good news is that economists predict this will start paying off. It’s predicted that there will be solid growth from 2026, with total building increasing to $130.4 billion – an increase of 9%.
Opportunities in the Australian housing market
To meet the escalating demand, the housing construction industry will need to invest in building innovation and sustainable practices as well as skilled labour. Builders are forced to offer more attractive workplace benefits, including competitive salaries along with training and development programmes that allow for career progression. This investment will pay off in the long term with more economical and efficient practices and better retention for skilled workers.
This housing construction industry update shows that changes are necessary to facilitate increased construction and they can’t come quick enough. Both state and territory governments are under pressure to streamline building approvals, and grants are available to encourage the adoption of innovative construction methods such eco-friendly buildings or prefabrication as well as investment in technology.
High rents and rental yields mean that many investors are taking advantage by putting money into new builds. The Australian Bureau of Statistics (ABS) show investor loans for new home construction increased by 7% before seasonal adjustment from June 2024 to $1.6 billion.
For ADF property investors, the changes in the housing construction industry presents challenges, but also opportunities. The team at Capital Properties are keeping a close eye on market trends and government initiatives aimed at boosting housing supply. It’s our mission to help you understand these dynamics so you can make informed decisions on when and where to invest to meet your long-term financial goals.
To make sure you’re perfectly poised to take advantage of any investment opportunities, we recommend that you book into our FREE Capital Properties Discovery Session and/or our Switched-On Strategy Series.
Note: This information is general advice only. Always do your own research and seek independent financial advice
Matthew’s journey from property investment client to consultant
At Capital Properties, we pride ourselves on not only helping Australian Defence Force (ADF) members achieve their property investment goals but also on nurturing and supporting our clients beyond their service years.
Matthew Bondarczuk’ s journey is a testament to this commitment. Starting out as a client of Capital Properties, Matthew has transitioned to a pivotal role as a Property Consultant within our expert team. Looks like he saw something in us, just as we did in him! This is his story.
Our free Capital Properties Discovery Session is designed to help you make informed investment choices and take advantage of the various entitlements for Defence members.
You can click on the link to book, visit our website, or call 1300 653 352 to speak to Matthew or another Capital Properties expert.
On the go? Here’s 30 seconds of take outs:
- Matthew Bondarczuk served 10 years in the Royal Australian Navy.
- He acquired qualifications in Leadership, Business, Engineering, & Risk Management & is completing a Bachelor of Business, majoring in property & development.
- Matthew received the Navy Innovation Award for the research study: “Financial Education – A Critical Retention Tool for the Royal Australian Navy”.
- Matthew became a client of Capital Properties between 2016 & 2017, then transitioned to a role as Property Consultant in 2024.
- His passion for property investment & dedication to helping others achieve financial stability make him a valuable asset to the Capital Properties team.
Keep reading >>
Meet Matthew Bondarczuk
Matthew grew up in sunny Perth, Western Australia, At the age of 17, he pursued his dream of joining the Australian Defence Force, fulfilling that ambition with distinction by serving for 10 years in the Royal Australian Navy as both a sailor and an officer.
Not one to rest on his laurels, Matthew pursued extensive education in the Navy, completing multiple engineering qualifications and associated diplomas in leadership and project management. He was awarded the Navy Innovation Award for his paper submission and research study titled “Financial Education – A Critical Retention Tool for the Royal Australian Navy.”
The Former Chief of Navy Michael Noonan testified that “Matt is a dedicated, highly respected, and widely experienced Naval Officer. With qualifications in Leadership, Business, Engineering, and Risk Management, he is a very versatile leader and Defence professional. Matt is driven and conscientious and goes out of his way to help others.”
What drives Matthew
Matthew is an avid traveller and 4WD enthusiast. But giving back is where he finds true satisfaction. He dedicates his spare time to volunteering, assisting veterans, and representing the Australian Veteran Alliance in the DVA Young Veterans Contemporary Needs Forums.
Not one to shy away from challenges, Matthew will admit that one of his most onerous experiences was completing the clearance diver assessment in the winter of 2018. This rigorous process tested his physical and mental limits, but it also solidified his resilience and determination. And it’s that same grit that impressed us here at Capital Properties when we first had the pleasure of meeting him.
Transitioning to Capital Properties
Matthew became a client of Capital Properties between 2016 and 2017 when he sought out the guidance of our strategic property investment services. Matthew’s first impression of Marcus Westnedge (Owner of Capital Properties) was that he was easy-going, switched-on property expert, whose expertise and approachable nature made a lasting impression.
And Marcus could see that Matthew had a very similar vision to his own when it came to building a brighter future for himself and his family, as well as a drive to help others in the ADF achieve their future financial success.
From Client to Consultant
Matthew believes that serving our nation is crucial and often undervalued. He saw the potential of leveraging Australian property as a growth asset to provide financial stability post-service. His own successful property transactions ignited a passion for property investment, leading him to dedicate himself to helping others achieve similar success. To ensure his proficiency, he’s currently three-quarters of the way through a Bachelor of Business, majoring in property and development.
So, when Matthew joined the Capital Properties team as a Property Consultant in 2024, we knew his firsthand experience as a client meant he had a clear understanding of Capital Properties operations, values, and dedication to our clients’ success. And his experience and education give him unique insights into the challenges and opportunities faced by ADF members choosing to invest in property. All of which meant his transition into the Property Consultant role at Capital Properties was seamless.
Matthew’s property investment success
Capital Properties helped Matthew achieve his goals through strategic investment planning and emphasising the importance of time in the market rather than trying to time the market.
Together with his wife Brehanna, they’ve built a substantial portfolio while maintaining a healthy lifestyle balance. This personal success story is a testament to the effectiveness of Capital Properties’ property investment strategies. And it’s meant that Matthew has been able to enjoy a successful balance between professional growth and personal fulfillment.
Matthew highlights three key elements that make Capital Properties stand out:
- The widely experienced and personable Capital Properties team
- The new Capital Properties office in Coolum
- Making a positive impact on the ADF/veteran community
Matthew’s property advice for ADF Members
Matthew believes that property investment in Australia can be incredibly empowering as a growth asset, and he emphasises the importance of diversifying your strategy to include a balance of cash flow and capital growth.
But, before you do anything, book in for a FREE Discovery Session. Matthew agrees that it really is the best place to start your property investment journey. Then, he advises establishing a savings goal and setting up a locked (two-to-sign) savings account with someone you trust. This discipline can significantly accelerate your savings and investment journey.
When it comes to making that all-important property investment purchase, Matthew advises removing emotion from the buying process and engaging a professional. Emotional decisions can lead to overpaying, while data-driven decisions ensure informed investments.
And get to know your entitlements. ADF members benefit from a low-cost living lifestyle, housing subsidies, corporate partnerships with lenders for preferential rates, and significant concessions in certain states/territories, which can save up to $50,000 in some cases. These advantages make property investment an especially beneficial strategy for ADF members. Check out Defence Force loans and entitlements here.
On a personal level, Matthew, his wife Brehanna, and their daughter Morgan plan to travel around Australia over the next few years. The plan is to settle down in the NSW alpine region while continuing their property investment journey to build generational wealth. And we wouldn’t be surprised if one of his investments included a winery as he’s been itching to learn winemaking.
Right now though, Matthew aims to assist others in unlocking their financial futures through strategic property investment, helping them achieve long-term financial freedom.
Matthew’s passion for property investment and dedication to helping others achieve financial stability make him a valuable asset to our team. We are proud to have Matthew on board and look forward to the continued success of our clients, guided by his expertise and experience.
Matthew Bondarczuk’s journey from client to consultant at Capital Properties exemplifies the transformative power of strategic property investment. You can enjoy the same success and the best place to start is with our FREE Discovery Session.
Managing your investments is made easier and more efficient with our Capital Properties free online tools and apps.
Capital Properties buyers agent service
Are you in the Defence Force and are considering buying a property within your posting locality? Or maybe an established investment property? Our buyers agent service will help you find your ideal property and negotiate the lowest price and settlement with ease.
Capital Properties buyers agent service specialises in sourcing all types of property options. We research current market value for owner-occupied properties. We recommend investment properties with higher yield potential, as well as high growth property investments. And we’ll evaluate return on industrial and commercial property and investment properties that have value add potential with subdivisions and renovations.
How our buyers agent service works
Meet with one of our Capital Properties buyers agent experts for a Free Discovery Session and we’ll give you a taste of what it will be like to work with us. If you like what you see – and we’re confident that you will – we’ll grab your information and determine your borrowing capacity. Then we’ll follow up with a second meeting, or “Strategy Session”.
During this Strategy Session, we’ll ask questions like “How much do want to be worth when you retire?” and will develop a strategy to help you achieve your goals. Once we’ve nailed your criteria and agreed a plan, we’ll help you complete an engagement letter and contract to buy.
Then we find the most suitable property candidates and present you with the best options.
Although we have a 3-month buyers agent service engagement period, we’ll check in with you weekly for updates and to discuss options.
What you get with Capital Properties buyers agent service
We offer full buyers agent services to help you find the ideal property. No stress. Just results.
This includes:
- Strategy development and practical advice.
- ‘Wish list’ analysis to determine needs vs wants.
- Relevant research reports including RPdata, Forecast Id and Council Site Maps.
- A short-list of suitable properties.
- Evaluation of recent sales data with written appraisal.
- Skilled negotiation of property purchase price and terms.
- Liaison with mortgage broker and settlement agent to effect finance approval/settlement.
- Pre-settlement inspections.
- Overseeing contracts and exchange.
- Asset/property management/leasing
- Due diligence management: building and pest inspections, surveys, and engineering reports
What is a buyers agent?
Buyers agents are licensed professionals who specialise in locating, evaluating, and negotiating the purchase of property on behalf of buyers. They do not sell real estate. They are engaged independently and paid for by the buyer to act on their behalf. Whereas a selling agent can accept a commission from both parties in the same transaction, a buyers agent can only legally act for the buyer.
Benefits of using a buyers agent service
Get the edge in a competitive market. Having your own property professional representing your interests throughout the purchasing process saves you:
Time:
- Your property professional will search for and analyse property on your behalf.
- Buyers agents have access to databases and information not readily available to the public, including off market opportunities.
Money:
- You can rely on your buyers agent to source the correct property, in the right location, with better prospects for capital growth and/or rental yield.
- A buyers agent will negotiate to obtain the very best price and terms.
Stress:
- You’ll have one dedicated representative looking after your needs, rather than having to deal with several different selling agents.
- Experienced buyers agent services will make sure you avoid any property pitfalls.
To get started now, call us on 1300 653 352 or fill out the contact form and we’ll get back to you ASAP.
Old or new build? How to decide what’s best for you
In this blog, Capital Properties experts tackle the question: “Should I invest in an old property or buy new?” Finding the balance is essential for great long-term outcomes. Our mission is to help you become empowered to make a smart investment decision.
Deciding whether to invest in an established property or a new build can be a tough one. You need to think about finding a good balance between the lot size and what property improvements can be made. A great place to start is to consider the pros and cons of each – which should make your decision easier.
Need help developing a property investment strategy tailored to your Defence lifestyle? The team at Capital Properties work with busy ADF members to invest in long term goals. Our Capital Properties Investor Tools and Apps will help you make informed decisions about whether to invest in an old property or buy new. Download the first chapter of Property Investment SOP for free.
Or come and meet us at a free Capital Properties Discovery Session where we can discuss what might be the best move depending on your individual circumstances.
On the go? Here’s 30 seconds of take outs:
- Considering rentability, land value and long-term goals can help you decide whether to invest in an old property or buy new.
- Location is always a major consideration.
- You need to identify what tenants you want to attract.
- New developments tend to have bigger houses on smaller blocks and attract better tenants. While established properties can provide better land value for long-term investment strategies.
- Talk to the experts to get the best deal – Capital Properties Buyers Agent Service can help.
- There are pros and cons to both new builds and established properties. Capital Properties can help you consider all the factors to decide what’s right for you.
Keep reading >>
Design and layout vs size and rentability
To a large extent, the design and layout of a home will determine the type of tenants you’ll attract. And we know that if your property can attract good tenants, half the battle is won.
Think about it; an older property, even 7 – 15 years old (or even older) can feel dated and need general repairs and improvements. But it might be located on a large parcel of land.
Because of the land value, this property may be the same price as a newer, bigger property in a newer area with a smaller block. New developments generally have smaller blocks, although the footprint of the build tends to be larger. So, with new builds, you can get you a good-sized house needing no improvements on a smaller parcel of land.
The investment in the older property is in the ‘land value’ vs the ‘building value’. So, let’s see what other factors influence the property investment strategy about whether to invest in an old property or buy new.
Location matters
The other half of the battle is getting the right location – yup, there’s that location, location, location again! Whether it’s a small block or large, the location and its desirability is the very foundation of supply and demand.
The location is inherently linked to the future value of the land. People will always pay a premium for a well-located block of land, no matter the size.
There’s a general idea that bigger blocks are better. But the challenge is to find a balance between where you spend your money – land or improvement.
Depending on what you want to do with your investment property, there’s an argument to support both sides of the story. Thus, begins and ends the great contention between investors.
What do tenants want?
In the modern world, people seem to be busier than ever. And for most families where both Mum and Dad work, they’ll be looking for a property that’s convenient and easy to maintain. That often means a smaller block with a modern house.
However, some families will prioritise outdoor spaces with large gardens to kick the footy around and even a pool. Knowing who your target renters are is key.
When doing your research, you might come across a suburb with bigger blocks. These can be in urban areas where it is typically well-established, and the house may have been constructed some time ago.
What is the ultimate goal? Cash flow or redevelopment?
With any investment you need consider two key factors. That’s capital growth = location. And cashflow = accommodation.
Finding a balance between both is the challenge. And that mean’s getting comfortable with the decision whether to invest in an old property or buy new to make a smart investment decision.
You could invest in an area where there are larger parcels of land, where the accommodation might be smaller. Investing in ‘land value’ is a great strategy if you plan to redevelop at a later stage. Keep in mind that rental cash flow could be challenging due to the tenants attracted to this type of property.
Lots of the newer type developments have smaller blocks, hence the land size is more affordable. But generally, you’re able to build a bigger house with the estate covenants and land coverage ratios.
It’s always a more comfortable situation when you can control your property investment decisions. For example, being immersed in the design process so you know you’re building quality accommodation that caters for your target tenants. And being comfortable with the growth potential of the specific area that you’re investing in. That’s why house and land packages can work quite well for long-term investment strategies.
But there are many ways to skin the cat (honestly, who came up with this saying!?) when it comes to investing your money in real estate. We’re down with any strategy that’s simple and will achieve your goals.
Strategy development – Pros & Cons of investing in a new property
Pros:
- Cash flow is typically better
- Tax deductions are higher
- Maintenance costs are lower
- Often easier to manage when overseas
- Can control the design process
- Attract the ideal tenant
- Build in the best location you can afford
- Can be a smoother investment
- Fix price build contract
- Guaranteed build timeline
- Interest during construction is tax deductable
- Turnkey / rent ready once construction is completed
- Reduction in stamp duty (Land only)
- Initial deposit and cost outlay less
Cons
- Building can be expensive
- Delays can happen and costs can escalate
- Interest during construction
- No rent straight away
- Not all builds are turnkey / rent ready
- Extra / hidden costs if not fixed price
- Increased construction costs and trade shortages in recent years might mean building stalls
- Risk of builder going into liquidation
Pros & Cons of investing in an established property
Pros
- Purchasing price might be more flexible if sellers keen to sell – Capital Properties Buyers Agent Service can help with these negotiations to get you the best deal.
- Can rent straight away
- Typically attracts families which can be a more stable tenant
- Won’t usually require major works
- Fewer hidden costs
- Expenses, e.g. new appliances are tax deductable
- Established areas often means easy access to amenities and results in high growth potential
- Value-add redevelopment potential with subdivisions and renovations.
Cons
- Typically, older buildings = higher maintenance costs
- More maintenance = more demands from tenants
- May need to budget for cosmetic renovations
- Tax benefits may be less than new property
So, what’s the decision – invest in an old property or buy new? Still sitting on the fence? That’s OK, we can help you decide which scenario best suits you. Book into our free Discovery Session and we’ll explore your goals and discuss property investment possibilities and guide you to make a smart investment decision based on your current Defence pay rate and lifestyle.
Check out our FREE investor tools: Sign Up to Our Switched-on Property Investors Program | Your free online property investment toolkit
Australian Prudential Regulation Authority (APRA) are changing the debt servicing calculator which means you can potentially borrow more from the bank. Previously banks had to assess you at a higher rate which allowed for a buffer (7.25% interest rate), now they are not bound by that and the banks have the discretion around this. It means you could borrow a heck of a lot more – up to 20%-25%.
Find out how you can benefit from these changes here.
‘Outside of CBA this is the first major bank that has allowed I/O repayments > 80% for the past 18 months. It’s a good sign that the banks are slowly relaxing their lending criteria’ – Chris Raymond – Investment Lending Specialist
ANZ Media Release:
Effective Monday 25th March 2019, ANZ will be making the following changes to Residential Investor Interest only lending.
- Interest only availability for investment lending will be increased to a maximum 90% LVR for new and increased lending.
- The maximum interest only period will be increased to 10 years for investment lending.
Why are we making these changes? - In response to APRAs responsible lending guidance in 2017, ANZ made a series of policy changes to manage the growth in Interest Only (IO) and Investor lending.
On recent review, we have made a decision to increase our focus on the investor market. The upcoming changes demonstrate our continued appetite in the investor market, whilst ensuring we remain in line with our APRA requirements.
Should I buy a house to live in [PPR] or invest in?
We’re often asked what the best scenario is for Australian Defence Members is – should you buy a house to live in (aka; permanent place of residence [PPR]), or choose a property to invest in – and does it really matter either way?
This is a valid question. The two scenarios of borrowing to buy a house to live in or invest in a property are miles apart. As a long-term, wealth-building strategy, we often recommend that first home buyers should consider investing in property as an option worth weighing up. Let us show you some numbers, and you can decide for yourself.
If you’re wondering whether it’s best buy a house to live in or invest in, then come along to a free Capital Properties Discovery Sessionand we’ll help you work through the best scenario for your position.
As ex-ADF members ourselves and with 20+ years in property investment, we can point you in the right direction, empowering you every step of the way.
On the go? Here’s 30 seconds of take outs:
- There are some great home buyer incentives for Australian Defence Force members. And with the ADF rent allowance incentive, investing in one area and renting in another may be a better choice to support your lifestyle goals in the future.
- At Capital Properties we won’t to tell you whether to buy a house to live in or invest in. Our aim is to help you make the decision that’s best for you and that comes down to understanding the numbers. The numbers tell the story.
- Don’t make decisions based on dangled carrots. Work out how many carrots you can pop into storage in the medium and long term before you jump at an incentive to buy property.
Keep Reading >>>
Home versus investment?
In a wealthy country like Australia, home ownership is a popular aspiration. At the same time, we know that property investment can turn a disposable income into a secure financial future.
If you’re earning a secure income for the longer term, you could buy a house to live in or start investing in property. With your future lifestyle goals set, and a healthy savings plan in place this choice can pose a real dilemma.
The two questions you need to consider are:
- How much money do you need to buy the property?
- What are the ongoing costs of holding the property over the long term?
Knowledge is power when it comes to making smart decisions. Let’s explore both of these options further.
The costs of being a first homeowner
In investment and financial speak, your Principal Place of Residence (PPR) is the property that you live in and call home. Buying a PPR means you’ll incur ‘holding costs’ – i.e. the outgoings and expenses associated with getting a mortgage and maintain the property.
Your PPR commits you to principal and interest repayments on your home loan, maintenance and renovation costs, insurances, rates and all the other day-to-day expenses associated with owning property. And funding all these outgoings? After tax. Youch.
If you buy a house to live in, the holding costs of living in the residential property you’ve borrowed money for, are much higher than if you buy a residential property as an investment.
The holding costs of investing in a residential property
A residential property that you have purchased as an investment commits you to interest only repayments on your loan, as well as the outgoing costs such as maintenance and renovation costs, insurances, rates and all the other day to day expenses associated with owning property.
The difference is that with an investment property, you’ll be receiving rental income which reduces your taxable income. And your loan repayments are more likely to be interest only which is a lower commitment from your fortnightly cash flow.
That’s just the beginning. If you’re in the Australian Defence Force, you might decide to buy a house to live in a location you’ve been posted to. However, it may not be where you would choose to live otherwise. And it may not be a wise long-term investment.
Let’s take a closer look at that scenario.
Buying a home as an ADF member
As an incentive and thanks for your commitment to the Australian Defence, the ADF offers its members housing benefits. These incentives can be attractive in the short term but is buying a PPR as your first property in your best interest for the future?
We often chat with young Defence members who get seduced into using their property defence entitlements to buy into the locality they’ve been posted. Building a serviceable home with some of the trimmings. One problem with this is the posting location might not offer much in terms of long-term market growth and if you’re reposted elsewhere, the rental returns might not be great either.
We understand the appeal of wanting to jump in and buy a house to live in when you feel cashed up. But buying a PPR means loading up with bad debt. Bad debt is any debt that you pay interest on and won’t reduce your taxable income. That’s why it’s our mission to interrupt your flow of immediate term thinking and show you a more strategic, streamlined way. A way of setting yourself up with more freedom of choice in the long run.
Our goal is to help you maximise your ability to invest and grow your personal wealth. We’re not going to tell you – we’d rather show you. So, let’s explore the numbers.
Costs of buying your first home (PPR) with incentives
Read on for a breakdown of costs associated with buying your first PPR and learn how Defence Force members can use Government grants to help. We’ll look at the First Home Owner Grant (FHOG) in Victoria and FHOG in New South Wales and examine the Defence Force Residence Exemptions.
Imagine you’ve just been given the heads up on your new posting. You could use your Home Purchase Assistance Scheme (HPAS) or your Defence Home Ownership Assistance Scheme (DHOAS) in conjunction with the First Home Owners Grant (FHOG) to purchase a property in your new digs. We talk more about these grants in the post: “Buying a house while in the Defence Force”.
The whole idea is enticing. Imagine that you buy a house to live in with stone benchtops, new appliances and maybe even a glistening new pool to entertain all your oppos! Sounds good right? But is it the right decision for the long-term?
Here are some numbers.
* Figures were correct at the time of publishing this article (January 2023)
**After tax @ $80,000 p/a income
Looks great right?! And repayments are achievable, although with the current higher interest rates you might feel a bit of a pinch.
Cons of buying a house to live in [PPR] versus invest in
Let’s switch back to reality for a moment. This isn’t your dream home in your ideal location. Sure, you’ll buy a house to live in for now, and then maybe you’ll turn it into an investment property once you’ve seen this new posting out.
As a homeowner, you’ll be paying principal and interest repayments on a mortgage. You’ll also need to pay the property’s outgoings including the water rates, the council rates, insurances, and upkeep of the property – this can be a significant hit on your fortnightly cash flow. It will change the way you live because you’ll need to tighten up.
Buying a PPR might be okay while interest rates are low but it’s a different matter when the interest rates are as high as they are right now.
Here are some of the numbers.
Calculate cash flow impacts based on the holding costs of a PPR
Purchase price – 10% deposit – Defence benefits [FHOG + HPAS] <<Need to update these costs?>>
That’s a total of over $30K to fork out each year, after tax – around $600 out of your pocket each week. You’ve just dropped your disposable income. With extra expenses to cover, your ability to borrow for a loan to start or grow your property investment portfolio diminishes. And if you buy a house to live in, there are no tax breaks.
Also, if the locality you’re being posted to isn’t a great property investment area you’ll kick yourself that you didn’t choose a better area to invest in.
An option may be to hold off buying your PPR for now, and rent. Keep your Defence entitlements and invest in a purpose-built investment property in a major capital city with good property investment criteria. There are localities where the rental income returns are attractive in the short and longer term; and the capital growth is healthy.
Rent allowance - the financial incentive that puts cash back in your pocket
Here’s a summary based on the current Defence rent allowance. Below is a worked example (along with the previous one) of how you could cut your ~$600 per week housing costs to ~$230 per week. That’s an extra $370 every week back into your cash flow.
Breaking down the costs of buying an investment property first
Consider this option. Take the extra cash freed up through using your rent allowance incentive and invest in property in a research-driven way.
Leverage your deposit and your income into an investment property in a major capital city with sustained population growth. Research to find a locality that gives you a good supply and demand mismatch for the long-term. This will increase your investment roughly between 5 to 8% per annum and gives you great tax breaks. The property will be an income producing asset which can, in turn, increase your borrowing capacity so you can continue to grow your asset base.
Why not save your Defence entitlements until you work out where it is that you really want to live for the longer term? Invest in a residential property, and simply rent now with the goal of buying your dream home.
Think of it like take-away food. It’s convenient in the moment, but it won’t deliver long-term health benefits! With a long-term view, crunching the numbers on the holding costs of an investment property is a completely different scenario from buying a PPR.
By investing in a property, you’ll receive a rental income and claim tax benefits – two sources of income!
When re-working the example of the $450,000 property we used in the PPR scenario, you’ll quickly see the ongoing holding costs are considerably lower.
Calculate cash flow impacts based on holding costs of an investment property
*Please use as an example only
** Purchase price – 12% deposit [$54,000]
So, instead of costing you an additional $600 per week – you’d put $85 back in your pocket weekly! And this worked example doesn’t cover the capital growth that’s happening from year to year, that you can then leverage to borrow for your next investment property.
Buying a property for investment first will enable you to continue your savings plan and leverage into your next property in a couple of years.
And, if the interest rates go up so do your tax breaks, and you can put your rents up too.
Show don’t tell. We’ll let you decide which is the better option!
If you’d like help exploring how the numbers stack up for your personal situation, we’d be happy to help. Give us a call, or click on the Capital Properties links below to find out more: Schedule a Free Discovery Session | Property Investor Workshops
While you’re here, check out our industry-leading property investor tools and apps.
Homes for Heroes – Help for Vets in Need
By ordering Property Investment SOPs you’re helping transform homeless ex-service families’ lives.
By buying this book, you’re helping young ex-service people and their families’ move from homelessness back into civilian life.
Pre-Order Property Investment SOP here.
Shamefully, there are over 3,000 men and women who defended your and my home, only to face into homelessness in the challenging transition from discharge to civilian life.
We want to change this.
We aim to be a part of the solution by giving 100% of the proceeds of the sale of this book to Narrabeen RSL LifeCare and their incredible Homes for Heroes program (rsllifecare.org.au/young-veterans).
You’ve just joined the Capital Properties’ mission to fulfil an important calling.
Can you even imagine what it’s like to have no home? Sadly, homeless war veterans are getting younger and younger.
The Homes for Heroes program is getting young Australian war veterans back on the road to recovery from post traumatic stress disorder. The Program is achieving this by providing accommodation options and a whole range of support services to help homeless ex-service people return from living off the streets, back into society.
Congratulations. You’ve just got personally involved in a cause which touches all members of the Australian Defence Force – current and past. Your payment for this book will help fund much needed special support programs and service to help ease the shift from discharge, to civvy street.
You can help raise awareness and transform lives for the better.
Please help raise awareness by jumping onto your favourite social media and tagging:
I support #Homes4Heroes https://rsllifecare.org.au/young-veterans/
Hop onto Facebook and ‘Like’ and then ‘Share’ the Facebook page and ask friends to do the same:
https://www.facebook.com/homelessvetsoz/
Help is at hand if you need it right now.
If you’re in an emergency situation, please call Homes for Heroes on 0408 928 432 right now.
Thank you endlessly.
We would like to take this opportunity to acknowledge the strength, courage and dedication of all our Australian service men and women in defending our homes. Thank you. Thank you. Thank you.
Please make your enquiries to [email protected] | www.capitalproperties.com.au/Contact with the subject line: Property Investment SOP, Pre-Order.
Pre-Order Property Investment SOP here.
Kindest regards from all of the Capital Properties’ team.
Great news the Capital Properties Team is doing a road trip to Perth and would love you to join us at our exclusive investor evening.
Whether you are already an investor or just thinking about entering the market, this is the event for you.
– find out where the investment opportunities are in the Perth market.
– learn how to successfully invest interstate.
– discover how Mum & Dad can help you invest in Perth if your deposit isn’t quite there.
– unlock expert assistance with property management.
It’s a new financial year and a good time to think about your financial future and perhaps evaluate the goals you’ve set for yourself in 2017.
Enquires are to be directed to [email protected] | 02 92229444
| At Capital Properties, we help Australian Defence Force members to leverage their busy schedules and build knowledge and confidence to buy property effectively, either to live in or invest. We do this through providing ongoing support through the entire buying process. The scope of our reach is Australia wide. Together we work towards financial independence to leave a multi-generational legacy. |
