In 2022, over a quarter of residential properties sold in Queensland, Victoria, and New South Wales were bought outright by older Australians, immune to the consequences of rising interest rates and benefiting from high property prices. This notable trend signals a clear generational divide in the housing market and raises questions about its impacts on inflation.
The latest research conducted by the property analytics collective, Property Exchange Australia (PEXA), has revealed that the total value of residential property sales in 2022 reached $478.6 billion, of which $122.5 billion were cash transactions.
Around 25.6 per cent or 135,544 of residential properties sold last year were bought without mortgages. The Reserve Bank of Australia's strategy to counteract high inflation by raising interest rates will not, therefore, affect a significant demographic.
The cash-only sales mainly involved dwellings rather than land purchases in Victoria, New South Wales, and Queensland. The data excludes commercial property sales but does indicate some buyers might have utilised "existing loan facilities" like equity from other properties or overseas lenders.
25.6 per cent of residential properties sold in the eastern states were cash transactions in 2022
PEXA research suggests mainly older Australians downsizing and benefitting from elevated house prices are responsible
A greater share of cash-only purchases occurs in regional areas due to more affordable property prices
According to Mike Gill, PEXA's Head of Research, older Australians preparing for retirement and intending to downsize are the main contributors to these cash-only transactions. "They've likely sold a family home, reaping the rewards from the recent surge in property prices, and are using those proceeds to secure their next residence," Gill explained.
Those who are downsizing can also inject up to $300,000 from selling their homes into their superannuation funds, provided they have owned the property for a minimum of 10 years. These cash buyers, often dubbed "green changers," are primarily moving from cities to rural areas, which typically offer cheaper property prices. This movement underscores the generational divide between borrowers.
Younger homeowners, particularly recent purchasers, are prone to having larger mortgage balances. On the contrary, many older homeowners have either fully paid off their home loans or can pay in cash for a retirement home. As the RBA increases interest rates to combat inflation and slow down the economy, the younger demographic, who are more sensitive to rising rates, shoulder more of the burden. Older generations with savings may indeed benefit from this situation.
PEXA's study found that cash buyers tend to spend more in affluent urban regions where house prices are typically higher. In 2022, the Gold Coast witnessed the most substantial cash purchases with $1.33 billion spent in Broadbeach and $1.27 billion in Surfers Paradise. In Melbourne, Toorak recorded the third-highest cash purchases totalling $893 million, with Brighton seeing $668 million in transactions. In Sydney, Mosman and Potts Point experienced $725 million and $596 million in cash purchases, respectively. These areas thus signify the existence of affluent individuals capable of buying properties without loans, thereby driving property prices higher.
Cash property purchases were also noticeably high in regional Queensland and NSW. The areas with the highest proportion of cash transactions included Tara, Russell Island, and Gin Gin in Queensland, and Emmaville, Gloucester and Wombah in NSW. In Victoria, where only 36.8 per cent of cash transactions took place in regional areas, the highest numbers were in Yarram, Paynesville, and Metung.
Cash property purchases are not a new phenomenon. In 2021, cash transactions reached a value of $124.8 billion, following the $50.4 billion seen in 2020. The ratio of overall cash purchases has remained steady at 25 per cent since 2019, suggesting no significant increase.
The Reserve Bank's recent twelfth rate increase in just over a year, intended to bring down inflation, highlights the advantage older cash buyers have in benefiting from higher interest earnings on their savings. Older Australians, especially those paying cash for a new property, remain immune to interest rate rises. This immunity potentially benefits them if they have substantial savings, unlike younger borrowers who face larger loans, and higher property prices and are thus more exposed to rising interest rates.
The older demographic driving cash property purchases might be fuelling inflation indirectly. While there's no evidence suggesting they're spending significantly in other categories, their financial stability, less impacted by interest rates, might allow for additional spendings, such as overseas holidays or dining out. Younger borrowers, on the other hand, may be forced to cut down on discretionary spending due to rising mortgage repayments, an issue cash buyers are largely unconcerned about.
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