An open letter to the young people of Australia

There is hope.

If you believe that your only chance of getting a leg up in the property market is by buying a dog box in Dubbo, I’ve got great news for you.

If you’re tired of being beaten at auctions by cashed up baby boomers, who constantly outbid you with their abundant equity, their negative gearing, and their Self Managed Super Funds — I’m going to show you how to get one up on them.

Lean in close, because today I’m going to walk you through my plan.

It could result in you buying a brand new inner-city apartment within the next three years — at fire sale prices. Much, much cheaper than they are selling for right now.

Let me explain.

2018: The Year First Home Buyers Finally Get Their Revenge

Your ‘Kerry Packer moment’ will happen in 2018.

(Packer sold Channel Nine to a borrowed-up Alan Bond for $1 billion, and then purchased it back a few years later at a fraction of the price when Bond hit the wall. Packer framed Bond’s billion dollar cheque and hung it on the back of his dunny door. He famously remarked “you only get one Alan Bond in your lifetime”).

Your Alan Bond, dear reader, has just bought a yet-to-be-built inner-city apartment.

He was attracted by bright shiny (yet-to-be built — or paid for) things. And he doesn’t mind sticking his neck out and having a punt: besides, interest rates are at historic lows, and the market is booming — what could go wrong?

Let’s run the numbers.

Your ‘Bondy’ signs a contract with the developer to purchase a two-bedroom apartment for $600,000.

He puts down a 10 per cent deposit — $60,000 today — and will organise a $540,000 bank loan in three years time when the apartment is built, (a bank’s pre-approval only lasts for 60-days, so you can’t get finance until you’re ready to settle).

He does his calculations: in Melbourne prices have soared nearly 35 percent in the last three years. Sydney is up close to 50 per cent. So if history repeats, his apartment will have increased by as much as $300,000 by the time it’s finished – he’ll have made six times his money.

That’s what caused buyers in Western Sydney to purchase 191 apartments in five hours last weekend. Some real estate professionals warned that they were purchasing them on a 2 per cent rental return. That’s utterly insane.

In three years’ time there will be an oversupply of inner-city apartments in many parts across the country. It’s actually not hard to forecast today, because we can see what’s coming down the property pipeline in a few years time: apartment towers take years of planning and regulations to get approved. When the market is hot, like it is now, lots of developments spring up to feed the demand — but there’s a lag.

Let’s fast forward three years to settlement.

Bondy’s bank conservatively values the apartment at $550,000 — a full fifty grand less than what he has agreed to pay. (And I’ve seen worse valuations than this, even in today’s boom times).

Because of the oversupply in apartments, his bank is now only willing to lend 80 per cent of their $550,000 valuation, which is $440,000.

Bondy however is still contractually bound to pay $600,000 to the developer.

He’s $100,000 short.

What are his options?

Well, if he’s got it, he can begrudgingly tip in another $100,000.

If he doesn’t, he can walk away from the deal. Or more likely limp away: he’ll not only lose his $60,000 deposit, but he’ll also be sued by the developer.

His other option is that he can sell the apartment. Yet history shows that when lots of buyers are painted into this corner, their desperation tends to feeds on itself, causing fire sale prices.

Playing it Like Packer

Here’s you: ‘Okay, but how likely is this to happen, really?’

Here’s me: ‘Very likely. There are 90,000 apartments under construction in Australia that have been sold off-the-plan, but have yet to settle. About one fifth of these, or 18,000 apartments, were like Bondy, kicked off with a 10 per cent deposit, according to research from CoreLogic RP data’.

Over the years I’ve seen plenty of people screwed by buying apartments off the plan. I’ve also watched savvy investors scoop up apartments in places like Noosa at 50 to 60 per cent off. Investors in this case were caught between desperate developers, and bully-boy banks. And when that happens, money is transferred from the panicker to the planner.

A Man is Not a Financial Plan

Buying an apartment is a decent first step on the property ladder for young people — especially for the tinder-ites who work (and play) in the city. Case in point, when I first met my wife, she explained that she lived in an inner city one-bedder.

I assumed she rented.

I was wrong.

Then I hinted that she must have bought it with her ex-boyfriend.


Then I thought well she must have had wealthy parents.


In fact, as I’ll proudly explain to our kids in years to come — Daddy was a chauvinist pig, and Mummy was a smart young woman who didn’t need a man for her financial plan.

Yes, if you follow my plan you’ll be buying at a time of maximum pessimism. However, you’ll also be buying at a discount. An entry-level apartment will allow you to live there for five or six years, pay down some equity, and then either rent it out, or sell it and put the Capital Gains Tax free profit towards a family home, when you meet Mister Right, or Mrs Maybe. It’s how your parents did it: they started out small, and then traded up over the next twenty years.

So here’s my advice: save like a freaking demon over the next few years. With a 20 per cent deposit you’ll be able to kick it like Kerry, when Bondy goes broke. In the meantime, keep an eye out for glitzy apartment ads. When you find one you like, frame it. Who knows, in a few years you could be hanging it on the dunny door of your brand new inner city apartment.

Tread Your Own Path!