Developers try to lure first-home buyers ahead of Budget decision on housing affordability

The biggest barrier for three quarters of millennials is saving a deposit to buy a home. And there is no capital city in Australia where this is more difficult than Sydney, where a 10 per cent deposit on a median priced house is more than $110,000.

But despite all eyes fixed on the Federal Government to help first-home buyers in the upcoming budget, it’s not policymakers but developers who are trying to lure Gen Y back into the market.

They’re promising exclusive access and reduced deposit requirements to put first-time buyers ahead of investors.

In February, Mirvac announced it would set aside 60 apartments in its Sydney Olympic Park development solely for first-home buyers.

And developer Frasers has now halved the deposit required for entry-level buyers in two of its Sydney developments.

This reduced deposit means first-time buyers only need 5 per cent of the property value to be able to buy, Frasers general manager residential NSW Nigel Edgar said.

The offer of a reduced deposit, which is for properties across two developments in North Ryde and Botany, means the cheapest property available could be bought for less than $30,000.

But while this could assist some first-home buyers into the market, Bankwest Curtin Economics Centre deputy director Rachel Ong said the fix for first-home buyers needed to come from the government, not companies. 

“There are structural issues within the tax system that need to be looked at. These are concessions that have been in place for decades fuelling demand,” Dr Ong said.

“It’s a matter for policymakers rather than pushing the responsibility on to private developers or individuals,” she said.

A new Victorian shared equity scheme allows first-home buyers to purchase with a 5 per cent deposit in partnership with the government. And other ideas have been put on the table, such as allowing first-home buyers to raid their superannuation for a deposit.

But she doesn’t see these options as likely to be implemented.

And those who take up the developer offer of reduced deposits still have to jump through hoops. They need a loan pre-approval and Dream Financial finance executive Paul Bevan said there were only a “handful of lenders” offering 95 per cent loans.

They may also have to pay Lenders Mortgage Insurance (LMI) – a premium charged when a deposit is smaller than 20 per cent.

“But, if it is the difference between getting your foot on to the first rung of the property ladder or not getting started at all, then many people will consider paying the LMI premium worth the expense,” Mr Bevan said.

While saving for a deposit is a significant hurdle, some Sydneysiders are also unwilling to take on a huge amount in mortgage debt and the repayment costs.

Nina and John Morales, who are renting in Sydney’s south-west suburb Holsworthy, are eligible to borrow up to $900,000 from the bank, but have decided against it.

“It’s just a matter of demand exceeding supply and until those parameters shift then I don’t see any superficial Band-Aid budget solution working,” she said. 

“Whether the deposit is 5 per cent or 20 per cent, the serviceability of a massive loan doesn’t change,” she said.

Even with a smaller deposit allowable, she “still wouldn’t do it”. 

“I’m no longer interested in the Sydney property market – if I do buy one day, and it’s a distant ‘one day’, it will be elsewhere.”

And Taj Singh, co-founder of First Home Buyers Australia, said such offers from developers were not a genuine fix for the market.

He warned first-home buyers could face the risk of bank valuations coming in lower than the purchase price and when they paid such a small deposit it could be onerous to find additional funds come settlement day.