A deal too good to be true

Home ownership is a key part of personal wealth accumulation. There are considerable barriers to home ownership on remote Indigenous lands. Legal and title constraints are only the beginning.

By Glen Brennan

Home ownership is an important plank in any family’s wealth accumulation efforts.  You work hard, save for a deposit and then manage the ongoing mortgage payments.  For some of us we’ll trade up, buy a bigger house in a better spot, others will buy an investment property and let renters help with the payments.  As we get older and the children leave some of us will trade down to a smaller property that is easier to manage in our twilight years.

My point is home ownership in all its shapes and forms is the primary wealth accumulation vehicle for most Australians.  It is the great Australia dream after all.  And when we inevitability ‘drop off the perch’ there will hopefully be something for our children to rent or sell and that will make their life a little easier as they share in the spoils of our wealth accumulation efforts.

With this as a reference point, I’ve looked on in puzzlement as various governments and both black and white leaders have talked up the financial benefits of home ownership on remote Indigenous land.  My confusion starts when the first road block mentioned is land tenure.  Why? Well you see Indigenous land is inalienable, which means you can never own it freehold, however you can lease it.  The concept is nothing new.  The first house I brought in Canberra was under a similar model via a 99 year lease.

Yet the land tenure issue gathers momentum when politicians say the current model does not work and the legislation needs to change.  Throw in some lawyers who see it as a legal issue and you can see how land tenure takes centre stage as the primary stifler of home ownership in remote Indigenous communities.

I look at home ownership on Indigenous land from a risk and wealth accumulation perspective.  Going back to my early remarks, it seems like this should be the primary driver for home ownership on Indigenous land.  And by risks I mean what are the financial risks associated with buyers recouping their money, or preferably making some money as their property goes up in value.

Unfortunately this is where the Indigenous land tenure debate becomes more smoke than fire.  The truth is that buying a house in a remote Indigenous community is a very high risk decision if you want to accumulate wealth.  I will go a step further and would argue it’s so risky that it is irresponsible financial advice to encourage people to do so because there is every chance they’ll lose their money.  Why?  Well, there are 3 reasons.

Government’s change and so do their priorities

The WA Government’s threat to closed down 120 remote Indigenous communities is a useful illustration of the political risk which overlay remote community home ownership.  The problem is Government’s change their minds.  And given mortgage payments are usually spread over 25 – 30 years (that’s potentially 8 Federal elections and 6 State / Territory elections) you can see my point.  There is a real risk that a Government will decide to withdraw its resources and funding.  There’s not much in the way of infrastructure as it is, but this could be catastrophic for homeowners with a mortgage in a community that’s been left high and dry by a change in ideology.

The purchase price is wildly inflated

Building houses in remote communities is expensive.  According to a review of the Strategic Indigenous Housing Infrastructure Program it costs Governments $450k+ to build a house in a remote Indigenous community.  Therefore that is what they will want to sell it for to recover their costs.  The market on the other hand, would value the property at something like $20K – essentially the salvage costs of materials.  Supply and demand drive property prices.  Unfortunately, in remote communities there is going to be very few cashed up buyers and there are plenty of houses that Government would rather sell than pay to maintain.  I can’t see any hot auctions in remote Indigenous communities that will drive up prices.

Intergenerational wealth transfer will be difficult

And if you can’t sell your house it is going to be a little hard for your family to enjoy the benefits of you buying it in the first place.  I wrote earlier about the aspiration to leave your family something that will make their financial circumstances a little better.  For most of us the family home is the cash cow and Indigenous Australians should be no different.

However, in remote Indigenous communities realising the price you want, and selling in the timeframes you need, will be mission impossible for your family.  It is duplicitous for politicians and lawyers to say otherwise.  And here is a question you can ask the next person who talks up the financial benefits of homeownership on remote Indigenous land.

If it is such a great investment do they intend to invest their own money? Let’s see if they like it when their children try to sell their investment property in a remote Indigenous community for the $450K they paid for it……………  Their children will be scratching their head wondering what on earth they were thinking making such a high risk investment that is so difficult to realise.

My concerns with buying a house on Indigenous land can be summed up in two sentences.  It is a risky investment where you’ll pay too much for a house that you won’t be able to sell.  To say it more simply, the risk simply outweigh the financial reward.  It is that simple.

 

Glen Brennan is the Head of Indigenous Business at the National Australia Bank and a Director of the Australian Indigenous Chamber of Commerce

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