Labor’s landmark tax reforms announced this week have slammed the door on some of the new, but unconventional, ways hopeful younger Sydneysiders were attaining their first homes.
New research has revealed a surge in Gen Z and Millennials using shares, crypto, ETFs and rentvesting strategies as a way to build wealth that could eventually contribute to a house.
Many of these investors said their main motivation for buying these assets was because buying a home straight off the bat was too expensive in Sydney.
These strategies will no longer be as feasible after the government announced in this week’s Budget it will be overhauling capital gains tax charges on all forms of assets, which will cut into investor returns.
ETFs – exchange traded funds – had been a particularly popular alternative to bricks and mortar, with trading platform BetaShares reporting a 240 per cent rise in ETF buys over the past two years.
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Randwick-based rentvester Darcy Mangan is unhappy with the tax changes. Picture: Richard Dobson
BetaShares noted that younger Aussies often bought ETFs in the hope the value increases would grow their money faster, helping them get a deposit to buy a roof over their heads.
Property agency LJ Hooker reported Rentvesting had also been on the rise, particularly in Sydney, where entry level homes typically cost well over $750,000 in most areas.
The strategy typically involves an investor buying a cheaper rental in an outer suburb or different state, while continuing to rent near family or the CBD, and using the later capital growth to fund the purchase of their first home.
Investors using these strategies told the Daily Telegraph they felt the capital gains tax changes were a betrayal.
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Student Thaniel Litchfield, 21, said he felt the changes were unfair.
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Sydney rentvestor Darcy Mangan, 34, said he felt he was being punished by the changes after taking 16 years of working and renting simultaneously to save a deposit for his investment property in Brisbane.
“We’re being told ‘we’re doing this for your own good’ which doesn’t sit well with me,” he said. “I feel like I’ve worked so hard to be able to have something with the idea that I can use the equity to eventually buy a principal place of residence, but I just feel like the rug has totally been pulled out from underneath me.
“There’s no consideration that a first-home buyer can also be a renter and a first-time buyer can also be an investor, and many people do that.”
Student Thaniel Litchfield, 21, has been investing in ETFs in the hope of using the gain to buy his first home and said changed capital gains charges was “frustrating”.
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Sasha Langdon said she was relieved to have already bought an apartment. Picture: Jeremy Piper
“It’s sad,” he said. “They said it was to help first-home buyers, but now it’s carried across to people using alternative strategies to (buy a home).
“It really annoys me. It feels like’s it’s all just an excuse to increase tax.”
Mr Litchfield added that he felt limits to negative gearing for new investors announced in this week’s Budget, along with grandfathering provisions for existing landlords, were “unfair”.
“Someone like me who was hoping in the future to have an investment property now is limited and worse off.”
It comes as a new Loan Market survey revealed Aussies overwhelmingly believed property ownership was the ultimate financial security blanket. Seven in 10 said owning property was important for building wealth.
In NSW, this sentiment sits just above the national average at 73 per cent, while half of the state also said property was the best investment for building wealth in retirement.
Loan Market Mortgage Broker Beau Cook said the capital gains tax changes coinciding with new restrictions for negative gearing would be a double whammy for rentvesters.
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The ALP has said the motivation for the reforms was to help first-home buyers. Picture: Hilary Wardhaugh
The negative gearing changes would have a direct impact on how much a rentvester could borrow, he said, noting that many prospective buyers had become a lot more cautious about “overcomitting”.
Brendan Malone, the director of microinvesting platform Raiz, said capital gains tax changes would hurt those who had made small investments to turbocharge their savings for a deposit.
“These are people who had realised a house was out of reach,” Mr Malone said.
“Investing wasn’t just about growing their money. It was often a way to be more disciplined with spending. You aren’t temped as much to spend equities as you’d be with a savings account.”
Freedom over property and land was the key motivator for home ownership in the survey (63 per cent in NSW) along with long‑term financial gain (46 per cent in NSW).
Sydneysider Sasha Langdon, who recently purchased her first solo home in Monterey, said home ownership has given her stability and freedom.
“There was always a lot of uncertainty renting for me throughout my journey, owning a home gives that a really good stability, especially in Sydney,” she said.
Ms Langdon said this included liberty from landlords, opportunity to input her identity into her home as well as long-term financial security.
“A massive piece of it was the long-term financial benefit of owning a property, looking at how it can help me later in life and setting myself up for retirement.”
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– With additional reporting by Kaylee Cranley
