In praise of property
by Peter Switzer
Christopher Joye is as mad as hell when it comes to the so-called experts bagging housing as an investment and he has started identifying the culprits who are conspiring to promote the big rivals to direct property — shares, funds, financial institutions and a complying media!
And he points the finger at short-sighted super fund managers as well, who he argues are over-exposed to assets which are not as diversified as they should be.
Tell me why
Joye is managing director at research group Rismark International, and appearing on my program, SWITZER on Sky News Business Channel, he let rip.
He argues that there’s a curious fiction commonly peddled by analysts, economists, journalists, institutional investors, and even central bankers when it comes to those frequently referenced asset price “bubbles”.
He wants to know why more is not made of the share market bubble and its spectacular deflation. And there was the decimation of the property trusts, which was even scarier.
Joye thinks it’s a virtual conspiracy. He recently wrote the following: “Why would so many seemingly well-informed commentators make this mistake? In short, because it usually suits their vested interests.”
Point the finger
While the country’s 8.4 million homes are owned by many families, on the other hand, shares, listed property trusts, unlisted commercial property, hedge funds and private equity groups are mostly owned and controlled by powerful institutional stakeholders. He points the finger at fund managers, super funds, investment banks, corporates, etc.
And this opens him up to his most spectacular mud-slinging when he declares: “In turn, most of the analysts, strategists, economists, investors and journalists’ business models are built on these asset-classes succeeding. It therefore makes little commercial sense to bludgeon them with the relentless hysterics we hear about housing.”
Joye wants to see a media which is more critical of shares, companies, fund managers and financial institutions, and be less-prepared to clobber property as an alternative investment.
He believes the media plays a game that helps shares and hinders housing investment.
“In contrast, bricks and mortar is easy game. There are few, if any, institutional constituents to annoy,” he writes. “Just anonymous individual families with little authority and influence. Indeed, if you can spook as many of these retail punters as possible, you might just convince them to put more of their wealth into, say, shares.”
Personally, I don’t think anyone in the media actually thinks this way. By their actions they do appear to be more supportive of shares over property but they are more likely to be accessories after the fact. By the way, there are very good arguments for both asset classes and I think Joye’s reaction is more an over-reaction aimed at getting media attention. However, he does make a case that should not be ignored, though it could be toned down.
Here are some of his points worth taking on board:
- Reports of a forthcoming housing Armageddon ignores the Armageddon shares and funds have already been through.
- Claims that investment in housing is unproductive are wrong — it’s consumption and investment simultaneously and that creates both production and income.
- Stock markets are much more volatile than housing.
- Global stock markets often move together and so investors don’t get the diversification needed in a good portfolio, and he thinks this is a worry for our super funds.
- Australian house prices fell by only 2.6 per cent in 2008 and have now recovered all these losses. Since the end of 2003, Australian house prices have risen by just 3.6 per cent per annum—that’s barely in line with inflation. So much for the unsustainable house price boom over the last 5 years. During the same period, disposable household income has grown at a much stronger annual clip of 6.9 per cent. Australian house prices have even underperformed nominal economic growth (or GDP), which has increased by 7.3 per cent per annum since 2003.
- In the US, house prices fell by between 12 to 31 per cent peak-to-trough depending on whether you use the FHFA Index, which includes all 50 states, or the more popular Case-Shiller Index, which is limited to 20 cities. In contrast, the S&P500 Index experienced a far more substantial 53 per cent peak-to-trough fall during the GFC while the Nasdaq Composite Index declined by 52 per cent (and is still miles below the highs reached care of the 2001 tech bubble).
I think Joye has a good case to make that housing is much maligned. I don’t think there’s a conspiracy, but there’s a very professional group that talks up shares and funds at the expense of property. Buying a home, renovating it and pocketing the capital gain without tax makes property a great asset.
I don’t think there will be a bubble where Aussie house prices will collapse by 40 per cent. Property will remain a great asset class and investors should note Joye’s concerns about how the media can be too glowing about shares and investment funds. Good quality shares and property return around 10 to 12 per cent per annum over longer time frames such as 10 years — history shows that — but you have to buy quality.
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Published on: Wednesday, August 12, 2009blog comments powered by Disqus