By Steve Waters
There is a trend that is growing in prominence month by month and it’s called rentvesting.
Rentvesters are people who instead of throwing up their hands at high property prices and simply giving up, in Sydney in particular, are investing in other parts of the country instead.
Then they remain renting wherever they desire to live because they can afford to do so – they just can’t afford to buy property there.
A different market cycle
I believe this market cycle is a little different than previous ones and that’s partly due to rentvesters.
Rentvesters are a huge pool of people in the market and it’s a much bigger cohort of investors than the government or statisticians think.
In my opinion, rentvesters are partly a direct result of technology, particularly the internet.
The amount of quality information (such as data, trends, areas etc.) freely available now, compared to last cycle is vastly different. Platforms such as Facebook have enabled people to communicate and collaborate which in turn has potentially introduced people to investing in a way that was not possible last cycle.
This newly-acquired knowledge has inspired countless rentvesters, who are continuing to rent while investing in one or multiple properties in other locations.
In the Sydney market, rentvesters are a massive pool of people. In fact, we have plenty of them as our clients who are active in the market.
Two sides of the ledger
What’s also interesting about rentvesters as an investment group is that they represent statistics on both sides of the ledger.
That’s because they are renters and they are also landlords or investors.
It’s almost like the official figures are being double-dipped with the same people being counted numerous times in different guises.
The question is what would the first homebuyer and investment markets look like without these rentvesters?
To answer this question we need to consider what the data says – although there actually isn’t a lot of statistics about rentvesters. Not yet anyway.
You see, if they’re first homebuyers and investing in property rather than somewhere to live, then they’re not eligible for any grants as such, which makes it harder to track them.
Thankfully one of the big banks surveys property professionals to establish who’s currently active in the market.
According to its June quarter residential property survey, first homebuyers were the biggest players in new property sales and second in established housing, which does seem surprising.
In established housing sales, first homebuyer (FHB) owner occupiers scored 18% and first homebuyer investors (or rentvesters) were 10.1%, which means a total of 28.1% of the market.
When it came to new property, FHB owner occupiers accounted for 21.2% of new property sales in the quarter and FHB investors bought 14.4% – a total market share of 35.7%, the biggest such proportion since the survey started tracking FHB breakdown in 2014.
What is extraordinary about this data is that it shows that FHB rentvesters are playing a significant role in the market.
If they weren’t active, what would the market look like?
Affordability plain and simple
The rise and rise of rentvesting is due to a number of factors but the main one is affordability plain and simple.
The price of property in Sydney and Melbourne skyrocketed over the past five years, but wage growth didn’t. At the same time, rents also stayed relatively static.
It doesn’t take a genius to work out that if you can keep renting in Bondi for $600 a week, but to buy there will cost you $1,000 (at least) a week in mortgage repayments, then most young people will choose the former and not the latter.
Sure there is an element of the population that is complaining about their ability to ever buy property in Sydney.
The thing is that the market cycle is working as it always does, but Sydney prices are unlikely to retreat significantly.
That’s because it’s Sydney.
Not only is it one of the most desirable cities in the world, but its population is growing rapidly, it’s the economic engine room of our nation, and it’s geographically constrained, which means supply generally struggles to keep up with demand.
Smart investors, however, are refusing to give up and are looking at more affordable locations – either intrastate or interstate – and simply buying there instead.
That way, they can have the best of both worlds by living wherever they want to live while investing for their financial future elsewhere.
It seems that many people – young and old – are smarter than they’re given credit for.
That’s why rentvesting will keep playing a significant part in our property markets. In fact, if you ask me, rentvesting is likely to only go one way – and that’s up.
By Steve Waters