Superannuation withdrawals for home deposits have drawn fire from the federal government and are likely to be scrapped in the coming months, which could upset the apple cart for developers chasing pre-sales.
More developers are looking to collaborate with home co-deposit schemes to help swell the pool of off-the-plan buyers and unlock funding in an ever-tightening capital market.
Developer Goldfields alongside partner Icon Developments, announced this week that it would team up with Coposit for its project 33 Manning at Milton, its first built form project in Brisbane.
It follows New South Wales developer Thirdi announcing last year it had teamed up with Coposit on its Dairy Farmers tower development in Newcastle.
House prices remain high after what ANZ called “an extraordinary upswing” during the pandemic and interest rates are now biting.
Last year, the average Australian home deposit for first time home buyers grew to $119,560, according to research from Finder, and most save for five to 10 years for that deposit.
According to the Property Council of Australia, 72 per cent of renters surveyed want to own a home but cannot overcome the ‘deposit gap’.
In an attempt to combat these issues, the-then Coalition government in the lead up to the 2022 Federal election announced a scheme to allow first time homebuyers to access up to $50,000 of their superannuation to fund a house purchase.
But this week, the scheme that allows withdrawing super payments to contribute to home deposits was criticised by the now ALP-government financial services minister Stephen Jones, followed by suggestions that the practice might be banned entirely.
Partner at Laver Residential Projects Dennis Vertzayias, a project marketing company which specialises in new and off-the-plan developments, explains the issue.
“What we were seeing in the market particularly at the first time buyer end was that there’s a strong appetite and confidence in buying,” he says.
“They want to buy and participate and be property owners, the great Australian dream of home ownership is alive generationally.
“To be one, of course, you need a deposit and what we’re seeing is that at least 50 per cent of potential buyers have the financial capacity to repay a loan and have job security.
“But in some cases getting that $100,000 together to get into the property is the biggest stumbling block.”
However, there are proptech companies out there looking to combat the initial obstacle to homeownership.
Rent-to-own startup OwnHome was supported by $31 million from investors including the Commonwealth Bank last year, allowing buyers to front just 2 per cent and making monthly payments to grow their deposit.
After three to seven years, then then have the option to buy their home “at a pre-agreed price and put the accrued deposit toward their purchase”.
Meanwhile, AMP backed Bricklet, an app which works by allowing an investor, or multiple investors, to contibute to the deposit and receive an equity stake in the property.
A prospective homebuyer will then make mortgage repayments, as well as an occupancy fee to the investor.
Similarly, proptech business Coposit launched in 2021 to allow potential buyers to secure a property with $10,000 in savings, 10 times less than the average first time buyer deposit.
Developers usually need 5 or 10 per cent deposit as a minimum as banks need a qualifying presale to provide funding for the project, but getting this upfront from Coposit, which then takes weekly installments through the construction period of a development, is helping more people enter the market.
“I’m a massive advocate of anyone that has aspirations to buy,” Coposit founder Chris Ferris.
“For me that’s what Coposit is, it’s trying to help people get into the property market in a really different way. It’s bloody hard to get onto the ladder and if we can provide that alternative pathway, it’s a great outcome.”
Ensuring a 10 per cent minimum deposit is critical, Ferris says.
“In the lending space you don’t always need that full 20 per cent. Not that I agree with a very low deposit scheme, but that 10 per cent deposit is critical, and you can get to that prior to the completion of the property.
“The 2 per cent and 5 per cent deposit schemes have their market and benefits, but in markets in the last 12 months in particular, anyone that looked at lower deposit schemes might be sitting in negative equity.”
Of course proptech solutions using apps such as Coposit are still financial brokers in a sense.
“You definitely need to get independent legal advice, you’re still signing a contract and there are obligations, and if there are unforeseen circumstances usual contractual obligations apply.
“If you couldn’t continue to pay with Coposit, we’d give you a period to get back on track and we would let the seller know,as it is a commercial decision for them.”
Coposit is now working on 30 projects in four states.
It has appealled to developers due to the funding it may be able to unlock for new residential developments to combat the housing crisis.
“Logically, a buyer will take a lot more time to enter the market until they get funds together,” Laver’s Dennis Vertzayias says.
“The market works in waves and right now is a really good time in the cycle for a first time buyer to be entering. I think we’re close to the bottom and we’ll look back and think that’s the right time to buy.”
Ferris says that for developers it makes sense on a funding level as well.
“If a buyer has 3 to 4 per cent and they have time to work towards that 10 per cent, something like Coposit can create a sale that wasn’t there before.
“There have been issues with getting projects out of the ground and supply issues, and this can help bring that supply forward which is important. The ability to finance those projects before they commence is essential, and you might get 40 to 50 deals instead of 20 to enable that commencement.”
While house prices are slowly declining, Australian first time buyers need a considerably larger amount to buy a house than they did three years ago, which can prevent speedy takeup of new developments.
“For the developers, it’s important because it opened up a whole new market that may not have existed before,” Ferris says.
Article source: Queensland Property Investor
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