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Is property a more stable investment than shares?

John McGrath
Tuesday, August 20, 2019

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Investors in the share market have had a rough time of late, with eye-catching headlines about tens of billions being wiped off the ASX in a matter of days last week. 

The world is jittery about a possible global recession caused by the China-US trade war, Brexit, unrest in Hong Kong, slowing growth in China and most recently, a contraction in the world’s fifth largest economy and Europe’s biggest, Germany.  

Over the first two weeks of August, the S&P ASX All Ordinaries took a -5.9% fall, whereas it took six months for property prices to decline the same amount in Sydney before the market turned in June.

In those same two weeks, the All Ords finally went beyond their last peak, which was back in 2007. That means it took 12 years to fully recover from the GFC, whereas the Sydney and Melbourne property markets have taken about two years to right themselves in the most recent downturn.

This is a timely reminder that property is a safer, more reliable and most importantly, stable asset class for everyday investors.

Unless you’re a professional or a very experienced and resilient investor, it’s hard not to get nervous and panic sell when your shares take a sudden dive.  Don’t get me wrong, Australian shares have an impressive track record for great long term returns but the market can get very volatile, very quickly. 

With share market investment, you need to have the psychological strength to weather the sudden and usually sharp dips and remain focused on the long term. 

Shares are also highly influenced by global events.  Market conditions can change overnight, whereas property is a much slower burning asset class and primarily influenced by our domestic economy.

It is so easy to panic when stocks begin to slide; and unlike property, it takes one call to your broker or a two minute online transaction to dump your investments out of pure fear.

This is one of the many reasons why I think property is such a good option for ordinary investors.

We all need to invest for financial security. Unless you’re on a very high income, it’s not really possible to retire on savings alone. You need quality assets.

Any professional investor will tell you that diversity is really important, so having both shares and property is a great idea and there’s some good buying opportunities right now in both!

Focusing on property, it looks like people are starting to recognise this as we head towards the biggest selling season of the year.

The national ‘time to buy a dwelling’ index in the latest Westpac/Melbourne Institute survey of consumer sentiment jumped 3% this month to its highest level since early 2014.

I believe there is great opportunity for investors across Australia this Spring.

·       In Sydney and Melbourne, prices aren’t likely to go any lower in the best areas.  Lack of stock is pushing prices up in some suburbs, so don’t get carried away at auction and pay too much. This very tight supply/demand dynamic could change soon 

·      To maximise capital growth, look into some of the new infrastructure projects and identify areas that are beneficiaries of road and rail enhancements. Some areas have or will soon become 20-30 minutes closer to the CBD so that will spike values in the next sales cycle 

·       Yields are a bit low in our two biggest cities, averaging 3.4% - 3.7%, but falling interest rates are offsetting this.  Avoid oversupplied apartment markets where you’ll have difficulty securing a tenant right now

·       Prices have come off the boil in every other capital plus plenty of regional areas due to lending restrictions.  Things are easier now following APRA-led changes to assessment criteria, effective from July, which means you can borrow more and take advantage of softer prices now 

·       Rental yields are stronger in other capital cities and regional areas. Latest CoreLogic data shows the average gross yield is 4.6% in Brisbane and 4.8% in Canberra. Regional NSW and Victoria are averaging 4.7%, Regional Queensland is 5.5%, Regional South Australia is 5.7% and Regional Western Australia is 5.9%

Investor activity has fallen 40-50% on 2016/2017 peaks in NSW, Victoria, Queensland and ACT, according to ABS data, so if you’re ready to buy this Spring you won’t have much competition from fellow investors.

You might come up against a strong contingent of first home buyers though, and this competition will only intensify once the new First Home Loan Deposit Scheme begins on January 1.

Published: Tuesday, August 20, 2019


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