Monday, January 02, 2023

How Can They Afford It?

One of Moominmama's friends (from undergrad days in the world's most populous country) told her they have bought a house in one of the most expensive neighborhoods here. They plan to knock it down and build their dream home including a swimming pool. It is in walking distance of their two children's school, the most expensive private school here.  Her reasoning is that it costs AUD 4 million to buy an existing house like they want, and this will be cheaper. Still, a crappy house there costs almost AUD 2 million. They haven't sold their existing town house in our neighborhood yet and they apparently also bought her parents an apartment here. She is an administrator at my workplace on probably AUD 100-110k a year and her husband was an associate professor (AUD 150-158k). He recently moved to Moominmama's employer.

 

My immediate reaction was: "How can they afford to do that?" I think Moominmama gets a lot of her aspirations from following this family, including sending our children to private school. 



2 comments:

enoughwealth@yahoo.com said...

I've no idea how such financing gets arranged. I am finding it hard to get bank approval for an 800K loan to purchase an investment property worth around $1.3m, and also using our existing home equity (around $2m) as collateral (so the LVR will end up being a very modest 25% or so). And this is despite the property being expected to provide around $3k/mo rental income (which will be about 75% of the repayments on the 'interest only' loan) and us earning around $170K pa combined wage income, the bank still will require us to clear a lot of our existing lines of credit and CC limits before lending to us.
How one could qualify for a $2m owner-occupied loan with a combined income around $270K seems hard to figure out - let alone how they would then finance another $2m for the knock-down/rebuild. Perhaps they had some real estate investments in China that they sold before the recent 'correction'? I know that some property in Shanghai etc. went up 4x or 5x or more during the past decade or so. Or maybe he made a lucky investment in Bitcoin ;)

mOOm said...

Yours and my age make it harder to get loans I think. The wife is presumably the same age as my wife, so 11 years younger than me. I am guessing here husband is the same age. So, that probably helps a bit. But my understanding is that a construction loan would require 50% downpayment.