Essential Tips for Young Professionals
Budget measures, housing affordability and what it means for young professionals to enter the housing market
In the last few months, we have experienced a higher number of calls from our clients asking what they can do in this housing unaffordability environment.
Following the budget night of 9th May 2017, we would like to present a few facts and tips for young professionals wishing to enter the housing market.
- Housing prices in established markets are not likely to come down any time soon, however, this prediction varies depending upon where you live. Check the RBA’s latest minutes: http://www.rba.gov.au/monetary-policy/rba-board-minutes/2017/2017-04-04.html
- A boost in major infrastructure projects such as fast-tracking roads, rail, etc. as provided in the infrastructure program brought forward from last year’s budget by the Government.
- Capital gains tax discount or negative gearing are not being tackled by the Government in this year’s budget. Therefore, we are unlikely to experience an increased supply of housing into the market due to investor liquidation. The capital gains tax discount is not being abolished or reduced.
- In the latest mortgage market survey of about 600 professionals conducted by KPMG, 63% of professionals earning between $70,000 and $250,000 per annum and without a home loan, planned to apply and buy within the next two years.
Tips for young professionals who are renting but wanting to purchase a home:
- It is difficult to save up the deposit for your home, even for a young professional with good income and no financial support from the parents. You may have to settle for apartment living, especially if you target location is near Sydney or Melbourne’s financial centers.
- If you are willing to commute for an hour or more each way, look for properties close to public transport or a proposed transportation development. Perhaps you can negotiate a flexible working arrangement that allows you to work from home to reduce travel time.
- Save for a deposit by salary sacrificing to superannuation. This new budget measure may help for a time until the market compensates. It may seem a long way off, but you must also provide for your retirement.
- Consider salary sacrificing to super, especially before 30th June 2017. You can still salary sacrifice to super after this date, but the annual concessional contributions cap will drop to $25,000 for all age.
- If it is your choice to rent in the desired location and buy investment properties in less popular locations, so be it. Choose wisely as one thing is still true: Location, Location, and Location!
Do you want your cash flow to stream into your business like a rafting river? This is the one decision that will break the business cash flow drought.
Tips for young professionals who already have a house and are looking to buy investment properties:
- Check your depreciation schedule to make sure you are not missing out on any tax deductions you are entitled to on the investment properties.
- Consider refinancing to take equity from your home or other properties to purchase more properties.
- There is always a tendency to follow market investment trends, however, this does not always lead to the best outcomes. The important point is to consider all factors, especially your ability to manage the mortgage under the worst case scenarios such as interest rate rises or job loss before taking on more investment properties and more debt.
- There is no silver bullet when it comes to the timing of investments. You have to trust your own judgment and seek professional advice.
Please note that the information provided here is general in nature and, therefore, cannot be relied upon when making any investment decision.