Home ownership is still the Great Australian Dream, but for most people, it’s a dream that’s well and truly out of reach.
The average price of a home in Australia is around $650k. That’s an increase of $25k on the previous year. Tasmania and SA are the most affordable places to buy property, with NSW and Victoria the least affordable.
Capitals are unaffordable
Every Australian capital is classed as “unaffordable”. If you want to buy a home and you need a mortgage, be prepared to hand over around 42% of your income. It’s a bit less in Brisbane, at 23%, but Melbourne is also unaffordable for many, with mortgages soaking up 37% of income.
Working people earning decent wages simply can’t afford to live in neighbourhoods where they grew up unless they are given a significant helping hand from the Bank of Mom and Dad. Many 30-somethings are forced into shared housing in cheaper neighbourhoods just to pay the bills. And if they want kids, starting a family means making sacrifices.
Tough times for property investors
For property investors, the good times have been rolling out for a number of years. Indeed, property investors have been blamed for soaring house prices, particularly in property hotspots such as Sydney and Melbourne. But, there are signs that the property investment market is cooling off, with many banks raising the interest rates in interest-only mortgages. This has contributed to a slowing down of property prices in popular sectors such as city centre apartments in Sydney and Melbourne.
Previously, housing has been a popular investment vehicle. Property investors attracted favourable tax breaks and interest rates were low, but the government is introducing regulatory curbs to improve housing affordability for first-time buyers.
Is the housing market in decline?
Some economists believe that the housing market will decline by as much as 5% by the middle of 2019, which is bound to have a big effect on property investment. This hasn’t deterred the more experienced property investors. They have switched their attention to more affordable areas such as Adelaide and Brisbane. Nevertheless, with many Australian banks clamping down on interest-only loans, the sector is far less appealing than it once was.
Unless you have experience in the property investment market, property may not be the best home for your cash. Experts advise that young people would be better off investing their disposable income in a superannuation fund, which should see healthy growth over a 40-50-year working life.
Make your money work harder
Older people are advised to look at other ways to make their money work hard. If you already own a property, look at investment strategies such as put options on securities or a mutual fund. If you are close to retirement age, look at medium- to high-risk investments, as these will produce the best returns. Online share trading is not recommended for novices, but with some experience, it is worth investing a portion of your disposable income in stocks and shares.
Look at building a diverse portfolio with your money. Property is good, but with low-interest rates, traditional savings accounts are almost worthless these days. The only way your money is going to work harder is if you avoid being too conservative. Shares typically offer a 9% return on investment, compared to a pitiful 2% ROI from a savings account. If in doubt, take professional advice.