COMPETITION for affordable Sydney property will soon intensify, with a wave of first home buyers tipped to hit the market in 2014.
Around 26,000 young NSW buyers will emerge next year, a 21 per cent increase on 2013, according to LJ Hooker research- First Home Buyers; a dynamic and changing market. They will compete with investors currently dominating the lower end.
Recent ABS data showed first home buyers (FHBs) made up just seven per cent of new home loan applicants in NSW, down from 22 per cent in late 2011.
LJ Hooker research manager Eric Barnes said changes to state government grants and tight credit markets prompted the decline, but FHBs were being enticed back by low interest rates and improved housing affordability.
"Buying a first home represents their single most significant purchase," Mr Barnes said. "First home buyers are an essential component of the real estate cycle."
Smartline mortgage broker Aaron Sainsbury said that now government concessions are only available for new properties, FHB numbers have dwindled.
"Concessions on existing properties helped them set their sights higher," Mr Sainsbury said. "Now, they are reluctant to sacrifice that quality and buy further away from the CBD, but once they adjust, they will come back."
The absence of FHBs has enabled investors to buy up cheaper properties and cash in on big rental returns. The low interest rates mean they save more than $6,000 annually on mortgages, compared to when rates were above seven per cent. The difference has turned many properties cash flow positive.
"We are experiencing plenty of (investor) activity," said Smartline executive director Joe Sirianni. "$6,000 a year, or $115 a week, is a considerable sum of money and (allows) investors to make the move for the first time."
Investors currently account for around 40 per cent of buyers on Mr Sainsbury's books, while FHBs account for less than 10 per cent.
"It's almost a perfect storm against FHBs," he said. "When rates are higher, they don't face the competition from investors, because they get higher returns from other investments."
Sia Parmagos and her partner Michael Smyth have been looking to buy for three months. Both are living with parents so that they can save and take enough time to find the ideal property.
"We're at the stage where we want to have a home and assets to our names," Ms Parmagos said. "The low interest rates are a big motivator at the moment."
Government concessions on new house and land packages are out of reach for the pair, thanks to work commitments.
"We both work close to the city, so access to work is a major factor for us," Ms Parmagos said. "We have looked around the inner south, as well as in the Sutherland shire."
Investor Russell Dobson, CEO of an engineering supply company, bought a house in Quakers Hill several months back. The rent he receives covers the mortgage repayments with some left over.
"I wish I had bought two, because a lot of investors are jumping into the market," Mr Dobson said. "It was bad enough a few months ago; before I could even look at a place it was gone. Now it's even harder, so I'm glad I got in when I did."
FHBs are already doing battle with investors in some parts of Sydney.
"First home buyers are being outpriced by investors," said Helen Noble from Ray White Lower North Shore. "Some are disillusioned and are sitting out for a while."