Property: Gen Y asks, why not?

Good news for the housing market: over one-third of Generation Yers planning to buy an investment property by June 2011 also aim to purchase a home during that time, according to the results of Mortgage Choice’s recent 2009 Property Investors Survey.

Even better, almost one-quarter eventually want to create an investment property portfolio of ‘as many properties as possible’.

The survey results provide evidence that activity from younger buyers will not decline at the end of 2009 as some commentators have predicted and support commentary around the housing market recovery continuing well into the future.

For example, 71 per cent of the 281 Generation Y respondents were delaying their investment property purchase until the First Home Owner Boost finishes on December 31, 2009.

Our franchisees tell us that many investors are set and ready to go once the boost has had its day, and apparently Generation Y is no exception. It is encouraging to see young people keen to make their mark on the property market.

Many have high hopes to purchase more than one property by June 2010, and whether this is overly ambitious or not, the positive sentiment should provide a boost to the industry.

Almost one-third of the investors-to-be (31 per cent) planning on entering the market for the first time were forgoing their First Home Owner Grant to buy an investment property and, in the true spirit of their ‘want it now’ generation, 36 per cent plan to buy both a home and an investment property (or properties) by June 2011.

It is interesting that almost one in six — 15 per cent — feel pressured into buying an investment property by family and/or their partner. This raises concerns about younger borrowers, who are less likely than other generations to have work security due to their propensity to job hop, over committing themselves at a time when interest rate rises are looming.

Other key motivations for Generation Y purchases were:

• 93 per cent want to set themselves up financially for the future;
• 79 per cent want to take advantage of the benefits of the current property market;
• 73 per cent see more benefits in investing in property than in the share market;
• 72 per cent believe there is potential for housing price rises;
• 67 per cent have researched the property market and feel property investment will enable them to achieve their financial goals sooner/better;
• 67 per cent want to get their foot in the property market door;
• 66 per cent want to take advantage of currently-low interest rates;
• 58 per cent want to take advantage of tax benefits;
• 57 per cent have based their decision on advice received from family, friends or a financial adviser; and
• 56 per cent have decided to invest after reading and/or hearing of others’ success.

Despite the pressure, it seems younger Australians are relatively confident about property, with 61 per cent rating their level of confidence in their state’s housing market as moderate (the highest of any generation) and almost one-third — 30 per cent — rating it ‘high’ (27 per cent) to ‘very high’ (3 per cent). Meanwhile, 8 per cent rated their confidence as ‘low’ and only 1 per cent rated it as ‘very low’.

A large number have lofty ambitions as market players: 24 per cent said they plan to create an investment property portfolio of ‘as many properties as possible’, which was the highest of any generation. Forty seven per cent were looking to own two to three properties, 13 per cent wanted only one, 9 per cent were planning on four to five while 3 per cent were planning on six to 20.

Ambitious plans come at a high price, so it is not surprising close to one-quarter currently live rent-free at home (20 per cent) or at someone else’s home (3 per cent) in order to save for their future investments. Close to half pay rent (46 per cent), and of those, 20 per cent were doing so at their parents’ home.

A significant percentage had previously entered the property market, with 32 per cent of Generation Y respondents already home owners. Not surprisingly, only 8 per cent own outright.

Mortgage commitment is daunting for many, so we are seeing a large number of Generation Y property investors turning to friends and family for support. This generation is often seen to be more independent than those before them, yet buying with a partner topped buying on their own, at 49 per cent and 35 per cent respectively. Just 7 per cent will purchase with a sibling, 5 per cent with a parent and 4 per cent with a friend.

Where are the younger investors planning on purchasing? The areas around Australia that were seen to provide the best investment prospects until at least mid 2011 were:

• 17 per cent within 15-50km of Sydney’s metropolitan area;
• 16 per cent within 15km of Melbourne’s metropolitan area;
• 14 per cent within 15km of Sydney’s metropolitan area;
• 13 per cent within 15-50km of Melbourne’s metropolitan area;
• 10 per cent within 15-50km of Brisbane’s metropolitan area;
• 6 per cent within 15km of Brisbane’s metropolitan area;
• 5 per cent within 15-50km of Perth’s metropolitan area;
• 4 per cent within 15km of Perth’s metropolitan area;
• 4 per cent outside 51km of Sydney’s metropolitan area; and
• 3 per cent within 15-50km of Canberra metropolitan area.

They were more likely to be considering purchasing a house (73 per cent) and less likely to consider a unit/apartment (49 per cent). Thirty two per cent said they were looking to buy a townhouse/terrace, 5 per cent a duplex and a further 5 per cent a commercial property.

The property aspects considered most important, in order of preference, were:

1. price;

2. locality in terms of convenience to amenities and transport;

3. number and/or size of rooms;

4. features such as driveway access, garage, swimming pool, backyard, fireplace, and so on;

5. aesthetic appeal;

6. locality in terms of prestige;

7. age of the property; and

8. green/environmental aspects or initiatives.

In typical Generation Y style, many respondents saw a property having all the mod-cons as more important than living in a prestige location. The latter was much more important for both Generation X and Baby Boomer respondents.

While ‘right here, right now’ is symbolic of the Generation Y mindset, most were looking a fair way into the future and intending to hold onto the investment property. Thirty-six per cent were intending to keep it for 10 years or longer while 46 per cent were planning on five to 10 years. Only 18 per cent said up to five years — though this was the highest of any generation by more than 7 percentage points.

Although housing affordability is a big issue for the younger generation, it does not appear to be deterring them from the market. Property ownership, whether for making money or making a home, is a goal that a large number of Generation Ys are aiming for.

Note: For the purpose of the survey, Generation Y was born between 1980 and 1994, Generation X was born between 1965 and 1979 and Baby Boomers were born between 1946 and 1964.

Kristy Sheppard is the senior corporate affairs manager at Mortgage Choice.