The Gold Coast property boom means a million-dollar mortgage is still cheaper than renting, with tenants set to pay thousands more this year
It’s official … a million-dollar mortgage is cheaper than renting, writes Ann Wason Moore. FIND OUT WHY
Opinion
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THIS image is the reason why renters cannot win on the Gold Coast.
While the adage may advise that a picture says a thousand words, this one says a million.
This house at Varsity Lakes sold just two weeks ago for $1.06 million … a pretty hefty price for a little house on a small 400sqm block.
Assuming a 20 per cent deposit was made, the resulting $848,000 mortgage will cost - according to the advertised rate at Commonwealth Bank - exactly $3303 per month, or just over $760 per week.
But this same house is advertised for rent right now at a staggering $900 per week.
It certainly puts paid to the notion that the property market is no place for investors. Sale prices may well be sky-high, but it seems the return is worth it.
After all, who needs negative gearing when you can positively make a $140 per week profit straight after settlement? Even with the cost of insurance and rates, that’s a tidy return.
It might seem an outrageous price to pay for someone else’s mortgage, but given that a duplex on the same street - with one less bedroom and less than half the space in square metres - is asking $800pw, it practically seems reasonable.
But the truth is that when it comes to the rental market, we passed reasonable a long time ago.
Now we live in a moment where a million-dollar mortgage is more affordable than renting the exact same property in the exact same market.
Where once it was advised to rent cheaply while saving up for a deposit and ongoing mortgage repayments, now it seems the only option is to pay a fortune in rent forever - the opportunity to save is over. Unless, that is, you’re approved to borrow that million-dollar mortgage.
Even with interest rates tipped to rise, the growth in rental prices is set to outstrip that increase.
Statistics show that it’s now cheaper to rent in Sydney, with a median average rental price of $722 per week, than on the Gold Coast, with a median average rental price is $770 per week.
The data from Christopher Housing Boom and Bust Report shows rental costs for all dwellings on the Gold Coast rose by 20.2 per cent in 2021, while house rental prices jumped a whopping 27 per cent, and the price to live in a high-rise grew 17 per cent higher.
And the news is only set to get worse.
The opening of international borders, while great news for our tourism, hospitality and education industries, means yet another surge in demand for rental properties.
With students and seasonal workers seeking rental accommodation, and long-term leases rolled over into holiday letting, buyer agent Pete Wargent says the result will be soaring rent increases.
“We can expect to see national rental price growth rising into the 10 to 20 per cent range forthwith, with most rental markets around the country already experiencing tight conditions” says the BuyersBuyers co-founder and chief operating officer.
“Reserve Bank of Australia research has previously shown that new migrants and arrivals to Australia tend to have only a limited impact on the housing turnover rate, because most new arrivals are renters initially, especially international students.
“That means a lot more demand for rentals is coming in 2022. As the border reopens, many parts of Australia may experience chronically tight rental markets.
“With interstate migration to Queensland the highest in over 15 years, rental vacancies are already tight across the coastal regions, and we expect this to continue as the borders reopen.”
In fact, when it comes to investment, Mr Wargent tips that apartments in Palm Beach, Miami and Tugun will see rent soar sky-high, making them the perfect place to buy into a mortgage.
If only it was that easy.
With such a surge in demand, it seems all but impossible to break the rental cycle. Meanwhile, those with the cash - or at least the deposit - can snap up investments that make a perfect passive income stream.
Why sellers are asking too much for Gold Coast homes
Whether it’s going up or going down, there’s no denying the housing market has already gone insane.
Given that property is my porn, I normally can’t get enough of scrolling through the listings on realestate.com.au.
But what I saw this weekend left me well and truly turned off.
Let’s just say that bigger is not always better. In fact, sometimes it’s just plain unnatural.
How about an 840sq m property in Waterford West? It boasts three bedrooms and two bathrooms … for just $5.5m.
Or if that’s too much for you, what about a 379sq m property in Pimpama? Somehow they’ve fit four bedrooms and four bathrooms into this tiny block … for only $1.1m. It suggests it’s an NDIS investment opportunity so maybe that’s worth more than I understand?
Sitting in between the two is a three-bedroom, one-bathroom “renovator” on an 812sq m block in Beenleigh for $1.6m.
These are just a few of the most WTF examples I found.
If you click on a map search you can see that the Coast is now literally littered with $1m-plus properties.
Closer to the coastline, but nowhere near beachside, the average price now seems to be hovering at $2m.
As a homeowner, I love a boom as much as the next (except when it raises my rates, of course), but I’m getting a little scared now.
And I’m not alone.
Because nobody wants a bust. (Well, except those desperate to get a toehold on the property ladder.)
Property experts themselves worry about our exponential price growth, simply because it is not sustainable.
Every market will have its ups and downs, but Gold Coast housing has a history of riding a rollercoaster – ridiculous peaks followed by stomach-churning crashes. As we mature as a city and a market, we should be aiming for waves rather than spikes.
Indeed, Gold Coast property legend Andrew Bell, of Ray White Surfers Paradise, acknowledges that a “modest slowdown actually would be healthy for the market because it would prevent a bubble from forming”.
But judging by some of those prices posted on realestate.com.au, it seems that not everyone has received the memo.
The truth is that we’ve all been under the influence of property FOMO ever since the pandemic hit.
Despite dire predictions that developed with Covid, investors ploughed their money into bricks and mortar, while prospective sellers decided to hold tight during uncertain times. The result was high demand, low supply and, literally, boom.
As any realtor will tell you, a house is worth whatever someone is willing to pay. But what we are willing to pay versus what we can afford to pay are two very different things.
As a result, research shows that mortgage stress in some Gold Coast suburbs has increased almost 1000 per cent in four years.
New data released this month by Digital Finance Analytics (DFA) shows 19,881 of the city’s 89,000 properties are under financial stress, up from 15,036 in 2020 and 12,779 in 2018.
Mortgage stress means homeowners are spending at least 30 per cent of their income on loans, and the number of stressed households in Palm Beach and Elanora has shot up 965 per cent, while Broadbeach has risen 571 per cent.
Southport, Labrador, Coomera and Nerang all recorded increases of more than 100 per cent.
That’s a real worry as the boom begins to recede alongside the peak of the pandemic.
In fact, economists at one of Australia’s biggest banks have now predicted a huge drop in property prices before the end of 2024.
Westpac economists predict house prices could drop by 14 per cent over the next two years, as strong inflation forces the Reserve Bank of Australia (RBA) to start lifting interest rates from August this year.
Here on the Gold Coast, our market will be somewhat buoyed by continued strong demand from interstate migrants, but there is only so much inflation we can withstand before we bust.
The moral here is that we need to be careful what we ask for.
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