Within a challenging property market it can be difficult finding a way in. Cue the housing market disrupters offering innovative schemes to win your business and open doors to property ownership.
It’s no secret that the property market is tough to crack into. Tighter lending practises in Australia and an overall housing affordability issue have made it difficult for people to purchase homes.
The latest housing finance figures from the Australian Bureau of Statistics (June 2018) showed a decline in new loan approvals for both investors (1.8%) and owner-occupiers (0.2%) compared with the month prior.
Industry educator and researcher, John Lindeman says the housing market is a challenging landscape.
“Housing is now unaffordable for potential first home buyers in Sydney and Melbourne, the banks are more rigorous in setting minimum housing finance qualification requirements and investors are finding it more difficult to obtain finance as well,” he explains.
As a result, new models known as property disruptors have emerged that offer potential borrowers a foot in the door, while side stepping barriers traditionally placed in their way.
“They offer alternatives to obtain property with low or no deposit incentives, rent-to-buy and wrapping offers, land banking options and passive development schemes,” Lindeman explains.
“Buying property is an expensive business, and the disruptors offer an entry pathway into owning property to those who would otherwise not be able to participate because they can’t raise a deposit, get bank finance or afford making the repayments.”
Some other examples might be digital agencies that run their service entirely online, with 24/7 access, schemes that allow you to invest online as a part-owner within a group of investors and private sale support platforms that by-pass real estate agencies.
While some innovative models are worth exploring, Lindeman says many of these disruptor schemes can be ‘traps for the unwary, rather than opportunities’.
“Low or no deposit offers look attractive, but you will ultimately pay the price with higher repayments and a greater debt level. Worse, many of these offers are made to attract buyers to developments which are otherwise unattractive, so that you could be purchasing in an area where demand is falling and prices about to crash along with them. In other words, they are sometimes used by sellers’ agents to attract buyers to developments no one else is interested in,” he explains.
“Rent-to-buy schemes do not give you any rights to a property title and are really a form of leasing with some type of sunset provision offering you ownership in the future for an agreed price. If anything goes wrong with either your, or the owner’s, financial viability before you actually buy the property, you could lose all that you have put into the scheme.
“Land banking is buying an option to purchase on land that may be subdivided sometime in the future, while passive development is buying into a proposed property development by investing some funds of your own, without actually actively participating. Both are highly speculative and very risky, as you have no control over proceedings and outcomes. Again, you could lose everything.”
If you find yourself being attracted to one of these property disruptor schemes, Lindeman recommends you do a quick online check first — has the person, company or the scheme been investigated by Trade Practices, Fair Trading or the ACCC, and if so, what was the result?
Keeping informed will help you steer into the best direction.