The Property Market.. is it all it’s really cut out to be? — Part 1
On the East Coast of Australia, particularly in Sydney and Melbourne there is currently a property boom ticking over which has seen housing prices rise in excess of 200% in some suburbs over the last 5 years.
Many property spruikers and real estate agents are now saying “You can’t lose! Sydney property prices double every 7 years.”
But is this really all that it’s cut out to be? Let’s find out.
To start, let’s get right down to the costs involved in acquiring a property of your choosing. For simplicity, let us assume that this is a 4 bedroom house in Gregory Hills, NSW (because a property spruiker told you that the airport would drive jobs in this area). The house was purchased for $800,000 and sits on 500sqm of land.
By using the NSW Stamp Duty Calculator, you’ll find that the stamp duty on a $800,000 house will set you back a whopping $31,490 (and no, you can’t throw this on the “mortgage”)
On top of this, you will need at the very least a 5% deposit in order to qualify for a bank loan. For the purposes of this calculation I will be using 10% as with the recent APRA changes to home loans (more on that another day), you’ll see that banks are highly unlikely to give you a loan on a 95% LVR much longer.
This means you will need a $80,000 deposit + $31,490 in stamp duties (can be waived if you are a first home buyer). At this point, you will need to engage a solicitor in order to review your sale contract, this could cost up to $1500, with extra costs being incurred in order to ensure all checks and balances have been carried out.
On top of these, there will/may also be a few other miscellaneous costs :
- Building inspection — $800
- Pest inspection — $500
- Other miscellaneous costs — $3000
With all of the above added up, you’d need $117,290 in order to step into your first property. However, you’d be writing off up to $37,290 as they would be sunk costs. Costs which are not recoverable and do add nor contribute to the base value of the property you’ve just bought.
Hold off from the hype and reassess the opportunity cost of the money you’ve currently got and ensure you think through your next property acquisition. It may not always be the right choice.
Shawn is the founder of GroceryGetter a new startup which aims to revolutionise the way we think about our grocery shopping.