Property Purchase Gone Wrong for First Home Buyers

DISCLAIMER: This is just our personal opinion and story, and is not intended to undermine or offend anyone in any way.

To this date, a lot of people still have that desire of owning their own house. I don’t know if it’s cultural, but from what I’ve observed, owning our own property somehow gives us a sense of security. Especially for people from the country I’m from: Indonesia, we have been taught since we were little that owning a property is a must. It’s even a way for people (and yourself) to measure your success.

Because of this culture, a lot of my friends and families, when they have started working, are in the market straight away looking for a house to buy. Most of the time, they’re looking for a Principal Place of Residence (PPOR) ie. the house they would live in. For those who are already in a longish-term relationship, this is a great opportunity for them to start planning for their future.

As someone who just started working, obviously they wouldn’t be able to buy in a posh suburb, unless of course they get “fund injection” from their parents. I have friends who were able to buy in the $800,000-$1.5mil price range with the help from their parents on their downpayment. I should say though that, this is a rare occurence. Most people I know are FHB in the FHB’ price range.

The way property world works is, the closer you are to the Central Business District (CBD) ie. the place where jobs are often located, the more expensive the property price becomes. Therefore, as you would imagine, FHB’ property price range is quiet low (so that they can afford it), thus, location-wise, is often located in an area that is very far from the CBD. For me personally, it would be very inconvenient for me. Yes, the price might be affordable and all, but if I have to spend 1-hour one-way to my workplace every single day, that would get to me eventually.

But here is the thing. A lot of FHB don’t mind that – initially. I’ve seen so many FHB just buy any house in any location for the sake of getting into the property market without thinking further what the impact would be. If they’re not careful, that house that they thought would be a dream house, can turn into a nightmare.

With FHB area, most of them are sold as land only. Therefore, they have to build. And not just that, the First Home Owner’s Grant (FHOG) benefits new build. Thus, would make sense for them to build new anyway. The problem is, FHBs are often inexperienced. Not only are they not experienced in negotiating a good price for the land, they are also not experienced in dealing with builders. Therefore, as you can see there, the price they’re paying for their property can skyrocket very-very quickly.

Think about it this way. As a land developer, knowing that you would have a lot of demands from First Home Buyers (FHB) + the FHOG, wouldn’t you bump up your selling price? Same with the builders. I’m not saying they’re bad people, it’s just everyone is thinking about their own pocket. I mean, why shouldn’t they?

FHBs are buying houses like there is no tomorrow. And just sign up with builders like there is no other builder. These builders will put up advertisement like, “Home and land package starting from $300,000”, or, “With $200/week you can now own your own house”, etc and FHBs will be drawn to them like crazy. The problem is, ads are ads. Ads are like screensavers on your desktop. They look awesome at the beginning, but as soon as you get into it, you’ll see the real thing. As soon as they sign up with a particular builder, then costs start to add: siteworks, other add-ons, etc. Before they know it, they would have paid $50-$100k more than the original advertised price. Combined that with the land price that hasn’t been negotiated, FHBs can be settling for a $420-$450k house in an area that should just be at $350,000. And no, I’m not even exxagerating.

So, these are some of the risks that FHB need to be aware of:

EMOTION RISK
FHBs are thinking with their emotion. I mean, why shouldn’t they? After all it’s their dream house, right? But little do they know that builders make their money from all these addons. Do you really need a beautiful-looking sink tap that cost $700 each in an FHB suburb that is 35km far from the CBD?

GROWTH RISK
FHBs area are full of other FHBs. Therefore, the salary of the people that live there is pretty much an FHB salary. How would you think that would help driving the property price up? As soon as they’re promoted at their work and earn higher salary, they would have moved out from that suburb because they can now live closer to the CBD.

CONVENIENCE RISK
These suburbs are often far from anywhere. Therefore, a lot of FHBs will eventually find it very inconvenient for them to live there. Yes they might be paying a relatively cheap price for the property, but everything else becomes very expensive eg. petrol, mileage. And plus, think about the stress consequence of having to drive that far from your workplace every single day.

INVESTMENT RISK
Worst of all, the investment risk. Now that FHB wants to move out from the area and thinking of renting their place out. Do you really think they can earn a good rental income? As I mentioned earlier, generally people who live in FHB areas are other FHBs. So income is already quiet modest. If anything, those who decide to rent can even be someone of a lower income. And, since they’ve spent too much on the property purchase initially, their equity growth will be very minimal. So add everything together, FHBs are now left with a property that just keeps bleeding money.

If you are a First Home Buyer who is thinking of buying a property, please please please get in touch with us before purchasing anything. We are confident we can give you a lot of valuable information. There are a lot of suburbs to choose from and we can put various strategies to help you with your property purchase. You don’t have to buy in a FHB suburbs just because it’s affordable!