Home buyers in Perth are being cautioned they could end up paying almost twice the initial purchase price of a property over the life of a loan, with some facing decades just to reach their break-even point, a leading expert has warned.
The True Cost of Home Ownership Revealed
Fresh analysis from Capital Property Advisory (CPA) paints a stark picture of the long-term financial commitment involved in purchasing a house. The research indicates that when all expenses are tallied, the total cash outlay for a home can approach or even exceed double its original sticker price over a standard 25-year mortgage period.
CPA board member Matthew Hughes, who also sits on the Property Investment Association of Australia (PIAA) board, stated that few prospective buyers fully grasp the cumulative financial burden. This includes not just the mortgage but substantial upfront transaction costs, ongoing holding fees, maintenance, and hundreds of thousands in interest.
"It is absolutely reasonable to conclude the total cash outlay over that period can approach, and in many cases exceed, twice the original purchase price," Mr Hughes explained.
A Million-Dollar Reality in Formerly Affordable Suburbs
The warning comes as homes now command prices of $1 million or more in suburbs historically known for their affordability, such as Balga and Westminster. Mr Hughes attributes this trend partly to genuine factors like supply shortages, population growth, and construction constraints. However, he also points to speculative, emotional, or competitive buying as a key driver.
He urges house-hunters to scrutinise value for money more critically than ever. "When you factor in about $40,000 in upfront transaction and loan cost and selling costs on exit, the reality is that property is illiquid," Mr Hughes said. "It becomes very clear that property is not a short-term trade."
The consequence of a poor purchase decision can be severe. "If you buy poorly, or overpay significantly, it can take many years just to break even," he warned. The core danger, according to Hughes, is not the cost itself but "paying too much for the wrong asset, and only realising it years later, when the transaction costs make it very hard to unwind."
Breaking Down the Numbers for a Perth Property
Using variables provided by the PIAA, the CPA research offers a detailed breakdown for a typical Perth home:
- Purchase Price: $830,000
- Deposit (20%): $166,000
- Loan Amount: $664,000
Over a 25-year loan term with an assumed interest rate of 5.6%, the interest alone would total $576,264. On top of this, buyers face significant one-off costs:
- Stamp Duty: $33,860
- Mortgage registration, land transfer, conveyancing, and inspection fees.
- Total upfront costs: Approximately $37,834.
Annual ongoing costs for council and water rates, plus minor maintenance, average $6,050. Over 25 years, this adds another $151,250.
The grand total for the $830,000 home over the quarter-century? A staggering $1.595 million.
Long-Term Investment Outlook Remains Positive
Despite the daunting total cost, Mr Hughes emphasises that buying a home remains a sound long-term investment, provided the purchase is sensible. The asset's value growth typically outpaces the nominal dollars paid in interest and costs, especially when inflation is considered.
"Importantly, those loan repayments are being made with future dollars, not today’s dollars — which are worth less in real terms over time," he noted.
The analysis shows the break-even point for the example property is annual growth of just 2.6%, which would see its value rise to around $1.598 million in 25 years. With more robust growth, the gains are substantial:
- At 6% annual growth, the home could be worth $3.5-$3.6 million.
- At 7% annual growth, the value could approach $4.5 million.
"However, this doesn’t mean any purchase at any price is justified," Mr Hughes concluded, reiterating the need for buyers to carefully evaluate the quality of location, land content, and scarcity before committing. The key takeaway is to enter the Perth property market with eyes wide open to the full, multi-decade financial picture.
