Where to look for a bargain

The apartment boom has an upside for disillusioned would-be buyers

Although it is becoming increasingly difficult for some buyers to get their foot on the property ladder, research conducted earlier this year has demonstrated that property ownership remains the great Australian dream.

But the Evolving Great Australian Dream report from Mortgage Choice and CoreLogic showed that almost 90% of the 1000-plus people surveyed believe that the traditional freestanding house on a quarter-acre block in the suburbs is no longer achievable.

But regardless of how difficult property ownership becomes, people still want to own a home, says John Flavell, CEO of Mortgage Choice. “In fact, our research shows people rate home ownership as more of a priority than career success, travel or having a luxurious lifestyle,” he says.

But there has been significant decline in the proportion of households that are owner occupied, from 69% in 2001 to 65% in 2014, the latest data from the Household, Income and Labour Dynamics in Australia (HILDA) survey reveals.

Given the downward trajectory in ownership rates, more prospective home buyers are ready to compromise in their choice.

The study indicates that 31% of Australians reduce their spending to save a property deposit, 24% decide to buy a smaller or more affordable place and 20% per cent aim to buy with friends and family.

Over recent years there has been a dramatic surge in the number of people embracing apartment living to fulfil their home ownership desires, says Flavell. “And when you look at the level of apartment construction taking place across the country, it is likely that we will continue to see more Australians calling apartments home.”

Some potential good news for buyers is that the glut of new apartments in major cities – many of which were bought off the plan and are now coming up to settlement – may mean some bargains hit the market.

Take Brisbane. Unprecedented growth in the city’s unit stock has seen numbers triple since 2000 and now the market is flooded. Many apartments were bought off the plan with 10% deposits at prices that are unlikely to be achieved today. For example, one-bedroom units that cost $450,000 are now being valued at about $320,000, according to industry sources.

Some buyers may simply cut their losses and forfeit their deposits rather than incur the long-term debt associated with overvalued property. This could present some bargains for buyers.

In Melbourne, where there has been a huge apartment building boom, good buys have already been in evidence. According to BIS Research, in Melbourne city (which includes the CBD, Southbank and Docklands), Whitehorse city (including Box Hill, Burwood and Mitcham) and Port Phillip city (including Port Melbourne, St Kilda and part of Southbank) more than half the units bought off the plan since 2011 have broken even or resold at a loss.

Buying with family and friends was another solution being considered by 20% of those surveyed. If you go this way it’s important to clarify and document expectations through a co-ownership agreement, which sets out the roles and obligations of the parties. It should cover things such as whether the finance is a joint loan or separate loans, what happens if one party defaults on mortgage payments, what happens if one party wants to sell the house, and how property maintenance and costs are to be handled.

Pam Walkley, founding editor of Money and former property editor with The Australian

Financial Review, has hands-on experience of buying, building, renovating, subdividing and selling property.