First Home Buyers Climb Housing Ladder with Negatively Geared Property

First home buyers can use negative gearing to their advantage
Photo: Michelle Hayes

Recent survey results suggest a number of first home buyers are using property negative gearing to enter the housing market.

This news comes after AMP Capital’s chief economist Shane Oliver recently encouraged first time buyers to consider negative gearing as a strategy to buy their first property.

Negative gearing in Australia has been hotly debated in recent months, with many holding this tax incentive responsible for high property prices while other experts, such as Stephen Koukoulas, point to wider issues like first time buyers turning up their nose at properties of lesser quality.

How Negative Gearing Works to the Advantage of First Home Buyers

Property negative gearing for the first home buyer basically involves purchasing a property and having it negatively geared, while paying cheaper rent to live somewhere else. 

The first home buyer can move into the property once the mortgage payments reduce to an affordable level.

According to Mr Oliver, he used this strategy to get into the property market.

“It seems many young buyers have already adopted this strategy or are considering doing so.”

”Using the tax system – negative gearing – to get into the property market has a lot of benefits for first home buyers,” he said.

”You can buy a property bigger or more valuable than one you can actually afford to live in [and] make it into a suburb you ultimately want to live in. It just means you may not move into your dream home for two or three years,” he added.

Some Investors with Property Negatively Geared are First Home Buyers

It seems many young buyers have already adopted this strategy or are considering doing so.

ME Bank’s national survey of 1500 households found 15.3 per cent of young buyers were saving for an investment, while 24.7 per cent intended to buy a home to live in.

”What we’re seeing is that people who are buying an investment property are still living at home or renting with a group of people,” ME Bank chief executive Jamie McPhee said.

“Using the tax system – negative gearing – to get into the property market has a lot of benefits for first home buyers.”

Interestingly, Mr McPhee also made the point that the number of first home buyers could potentially be much higher than official figures which do not take into account buyers whose first property is an investment.

If this is the case, then it could potentially alter the perception that negative gearing today only benefits older Australians whilst forcing the younger population to rent at subsidised prices.

Gen Ys Setting Themselves Up Financially for the Future with Negatively Geared Property

Results from the Mortgage Choice 2013 First Time Property Investors Survey also support the claim that young buyers are using property negative gearing to get into the housing market. 

Of the 1,019 respondents surveyed, 346 were Gen Ys aged between 19 and 33. 

Forty per cent of them were looking for an investment property as their first purchase, with 75 per cent citing financial security as a key motivation. 

This potentially indicates that young buyers favour the benefits of having their property negatively geared over government assistance in the form of first home owner grants.

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