With a significant reduction in transfer tax and stamp duties, as well as low interest rates spread across the private and public sector; increased mortgage options and financing amount available to potential mortgagors, many stakeholders would agree that there has never been a better time for young professionals to invest in the real estate market.
Acquiring real estate early is a fantastic way to create personal wealth at a young age, Petal James head of Mortgage Sales at JN Bank opines.
“When you purchase early you give yourself time to build a portfolio,” she says. “You can sell the property and purchase a larger one; or earn from the existing property either by renting it; or repurposing it for some other kind of investment,” she explains.
In addition, for young people, acquiring property early means a longer repayment period and, therefore, lower monthly mortgage payments.
“You receive up to the full 40 years to repay; therefore, your payments are much lower than if you decided to wait until in your 30s or even 40s,” Ms James indicates.
However, she acknowledges that it takes discipline and sacrifice for many young professionals to acquire property at an early age.
Vanessa Jones, now in her late 20s can attest to that. Similar to many other young people her age, her first inclination after graduating from university was to purchase a brand new car. However, her conscience, in the form of a prudent mother, helped her to maintain a level of sobriety.
“One thing I knew for sure was that I wanted to save, therefore, I started to work towards that,” the corporate professional recalled, acknowledging that her work environment, a financial institution, also influenced her decision to become more financially aware.
“I would constantly hear about saving for retirement and I increased my deductions immediately, contributing the maximum, and saved more than 10 per cent of my salary each month,” she continued. And, instead of purchasing the Suzuki Swift she wanted so desperately, she purchased a reliable used car, which she financed by “throwing partner” separately from her savings.
“I knew I wanted to also move out of my parent’s house badly, so I saved in multiple ways,” she said.
Two years into her job, Vanessa began her hunt for her first home.
“My mother identified the property. At first I was hesitant, because it wasn’t my dream location. It was not a new development, and wasn’t exactly what I wanted; however, my mother insisted,” she recounted.
The apartment was inexpensive, and although not in a prime area of the city, was a comfortable and peaceful residential area, with easy access due to the low volume of traffic.
“I needed 10 per cent for the deposit, and I had saved most of that,” she related, “I did not have any debt, because I used cash to purchase my first car. But, there was a shortfall of about $100,000, which I borrowed from my mother and paid her back,” she recounted, noting that the rest of the financing came from a drawdown of her benefits at the National Housing Trust (NHT).
Two years since purchasing her apartment, Vanessa, is now the proud owner of a second home, which she moved into recently. She is earning rental income from her first apartment.
A focus on debt, such as student loans, and their small salaries, can make the thought or task of homeownership for many young people seem daunting, says Ms James, but referencing Vanessa’s story, she underscored that it can be achieved.
She notes that by saving at least ten per cent of their earnings, regularly, and finding ways of supplementing their income, young professionals can achieve the deposit to purchase their first property.
“You will also need to manage your income wisely by controlling spending on non-essential items, and avoiding debt. So if you don’t need to purchase a car now, take the bus or taxi; or purchase a cheaper phone, and delay large purchases with your credit card, so that you can achieve the deposit at an earlier stage to purchase your property,” Ms James advises.
Vanessa agrees that being frugal is a necessity if one wants to achieve homeownership as a young professional under 30.
“The first thing young people need to recognise is that you need to make a sacrifice for the long term. However, over time, your income is likely to increase; therefore, you will be able to manage the payments which come with acquiring assets,” she recommends.
Ms James notes that choosing the right mortgage provider is also important, and pointed out that currently interest rates are low, and more options and financing are now available to purchasers than a decade ago, hence, accessing financing is much easier.
“There are graduated mortgages which young professionals can benefit from, where the payments start off low and increase as their income increases. There are also the options to mix NHT benefits with funds from other financial institutions, so that one can maintain some of their benefits for future purchases,” Miss James explains.
“There are also institutions offering additional funds to cover mortgage-related expenses, so that you can cover costs, such as your deposit and closing costs,” she adds.
“Yes, there are sacrifices that you will need to make, but, it is easier today to become a property owner than it was some years ago,” she maintains.
“Therefore, I encourage young professionals to consider purchasing early, as it will be an excellent way to build wealth,” she affirmed.