The Impact of Investor Strategies on First-Time Buyers

Buying your first home is an exciting step, but it’s not without its challenges. With rising property prices and fierce competition, many first-time buyers are finding it increasingly difficult to secure a home. One of the biggest hurdles? The influence of property investors.

Investors have become a dominant force in Australia’s property market, using strategies that often put them in a better position than first-time buyers. But what does this mean for those looking to purchase their first home? In this blog, we’ll dive into how investor strategies affect the housing market and offer tips for first-time buyers to navigate these challenges.

Who Are the Investors and What Are They Doing?

In Australia, property investors are individuals or institutions who purchase real estate primarily to make a profit, either through rental income or by selling for a higher price later on. These investors typically use various strategies to maximise their returns.

Here are some common investor strategies:

Buying in Bulk: Investors often purchase multiple properties at once, allowing them to outbid first-time buyers. Sellers are more likely to accept an offer from an investor who is willing to purchase quickly and without the uncertainty that comes with first-time buyers.
Leverage and Borrowing: Investors tend to use high amounts of leverage (borrowing large sums) to finance their purchases. By using other properties as collateral, they can secure more properties with less of their own money, which gives them a significant edge over buyers who are only looking to purchase one home.
Rentvesting: This strategy involves buying a property in a cheaper area to rent out while continuing to rent in a more desirable location. This allows the investor to benefit from rental income while still enjoying the lifestyle they want.
Tax Benefits: One of the main reasons people invest in property is the tax benefits, such as negative gearing. This allows investors to deduct losses from the property (e.g., maintenance costs) against their taxable income, reducing their overall tax liability.

How Investor Strategies Impact First-Time Buyers

The growing presence of investors in the Australian property market has made it harder for first-time buyers to secure a property. Here's how these strategies are affecting new buyers:

Rising Competition: Investors often have better access to financing and can move more quickly than first-time buyers. This puts first-timers at a disadvantage when it comes to making offers on desirable properties.

Example: In Sydney and Melbourne, investors are often purchasing properties within days of listing, which leaves little room for first-time buyers to even consider making an offer. This is especially true when investors are using cash or large deposits, which make them more appealing to sellers.

Increased Property Prices: As investors bid on properties, they drive up the demand in particular areas. As a result, prices are pushed higher, making it more difficult for first-time buyers to afford homes in their preferred areas.

Fact: According to CoreLogic, in some regions, investors are buying up to a quarter of the properties, and this increased demand contributes to rising property prices, which often leaves first-time buyers priced out of the market.

Why First-Time Buyers Struggle in an Investor-Dominated Market

There are a few reasons why first-time buyers are finding it difficult to compete against investors:

Lack of Access to Funding: Investors usually have easier access to financing. They can take advantage of interest-only loans, equity from other properties, and sometimes lower deposit requirements. In contrast, first-time buyers typically have to save for a large deposit and secure a more traditional mortgage, which limits their purchasing power.
Government Incentives: While first-time buyers benefit from government programs like the First Home Owner Grant (FHOG) or the First Home Loan Deposit Scheme, these incentives don’t always level the playing field when competing with investors who are more financially established.
Higher Deposits: Investors often have significant capital already tied up in other properties, so they’re able to leverage that capital to secure more funding. First-time buyers, however, are still saving up for their first deposit and can find it difficult to gather enough money for a competitive bid.

Fact: According to a report by the Reserve Bank of Australia, first-time buyers are increasingly finding it harder to save for a deposit due to rising property prices, particularly in major cities.

Potential Solutions and What First-Time Buyers Can Do

While investors may have the upper hand in some areas, there are still ways for first-time buyers to break into the market:

Look to Regional Areas: First-time buyers may want to look outside of major cities where prices are less inflated. Regional areas have seen significant growth and offer more affordable options, allowing buyers to enter the market without facing fierce competition from investors.

Example: Areas like the Sunshine Coast and Geelong have experienced strong growth in recent years, and properties there are often more affordable compared to major metropolitan areas.

Consider Government Assistance: First-time buyers should ensure they’re aware of all available government programs, such as the First Home Loan Deposit Scheme, which allows buyers to secure a property with as little as a 5% deposit.
Explore Shared Ownership and Co-ownership: Co-owning a property with a family member or friend can help reduce the burden of a large deposit. Shared ownership schemes also allow buyers to get onto the property ladder without needing to save for a full deposit.
Stay Informed and Be Patient: The real estate market is always changing, so it’s important to stay up to date with market trends and be patient. Sometimes, waiting for the right moment can result in a better deal.

Frequently Asked Questions

1. Why are investors buying so many properties in Australia?
Investors typically buy properties for rental income and long-term capital gains. Many also use strategies like negative gearing, where the costs of owning an investment property are greater than the income it generates, allowing them to reduce their taxable income.

2. What is negative gearing, and how does it affect first-time buyers?
Negative gearing occurs when the cost of owning an investment property (mortgage payments, maintenance, etc.) exceeds the rental income. Investors use this strategy to reduce their taxable income, which gives them a financial advantage over first-time buyers.

3. How can first-time buyers compete with investors?
First-time buyers can compete by looking in regional areas, using government grants, or considering shared ownership. It’s also important to work with a knowledgeable agent who can help identify properties that may be overlooked by investors.

4. What government assistance is available for first-time buyers?
Programs like the First Home Owner Grant (FHOG) and the First Home Loan Deposit Scheme are available to first-time buyers, helping them secure a property with lower deposit requirements and reduce upfront costs.

5. How do property prices in regional areas compare to major cities?
Regional areas typically offer more affordable property options compared to major cities like Sydney and Melbourne. Many regional areas have experienced significant growth, offering first-time buyers the chance to enter the market at a more affordable price point.

Conclusion

It’s clear that investor strategies are having a significant impact on first-time buyers in Australia. While it’s tough to compete with well-funded investors, there are still opportunities for first-time buyers who know where to look and how to navigate the market. Whether you choose to look at regional areas, take advantage of government assistance, or explore co-ownership, there are ways to break into the property market.

If you’re a first-time buyer, don’t get discouraged—reach out to us at Realty One for expert advice on how to find the right property within your budget.