You might think it’s a no brainer – after all the devastation caused by the global credit crunch – that property is a no contest winner. You might be right.  Your home is the best investment you are likely to have made. In the constant debate over shares versus property, bricks and mortar have won out.

An ANZ review has found the family home has been the highest returning asset over the past 24 years, taking costs, taxes and gearing into account.

Owner-occupied housing outperformed investment property (which still beat shares) largely because of its exemption from capital gains tax. The findings follow a study by RMIT, which also found property has generated better returns than the share market over the past 20 years.

But property investors should take note: the ANZ predicts the stock market will outperform bricks and mortar over the next decade. Even here, though, the bank points out that when the risks associated with each investment are taken into account, the difference between shares and property is likely to be small.

For homeowners this included assuming maintenance costs – rates, insurance and general repairs – were 1.2 per cent of the property’s value. Maintenance costs for investment property were calculated at 1.8 per cent of the dwelling’s value, covering advertising and property management fees.

Stamp duty was applied across the board at 5 per cent. To keep the analysis consistent, cash flow such as rent from investment property or dividends from shares was placed in a term deposit account.

When all the numbers were crunched, owner-occupied housing was found to have generated an annual return of 12 per cent. Investment property 9.6 per cent, stocks 8.9 per cent, government bonds 4.8 per cent, commercial property 4.2 per cent and term deposits 3.7 per cent.

On an average basis, a $100,000 investment in your home in 1987 would be worth $1.428 million today. A similar sum sunk into an investment property would be worth $810,000; although this could be higher of depreciation allowances are significant (for example in the case of near new houses or apartments). what the report fails to acknowledge is the possibilities of LEVERAGE which can magnify your gains in the property market significantly without the need to worry about the volatile share market.

The ANZ expects the ASX 200 to outperform all property over the next 10 years, with returns averaging 7.8 per cent a year, expected. Meanwhile, owner-occupied property is expected to return 7.2 per cent and investment property 4.5 per cent.

The report assumes capital growth in housing will be 5 per cent over the decade, rental yields will average 3 per cent and there will be no major shifts in interest rates.

The good news for property owners is that when the ANZ factored in the risk associated with each investment, they all came out roughly on par.

Having said all this though, you CAN NOT count your home as an investment so this really leaves you with the fact that an investment property can provide a better return than shares… BUT we always think it is wise to have a mix of both thus providing a diversified portfolio and reducing your risk.

No Comments »

Australia Housing Outlook 2009 (ANZ Summary)

The outlook for the global economy has stabilised however the recovery is expected to be slow. The Australian economy has fared one of the best of the global economies and has thus far avoided a technical recession, although I believe the pain is still very real here. Economic growth in 2009 is likely to be slow; however the ongoing government stimulus along with the improving Chinese demand will help stimulate the economy moving forward. It is important to note that the report does not mention that Australia’s economy would continue to fall… they are expecting growth, albeit very small for the 2009 year.

The Australia housing market has performed significantly better than other developed economies around the world. According to Residex it has softened by 1.2% to the month of May 2009, while RP Data suggests that there has been no change to house prices. After interest rate cuts and government assistance with the first home buyers boosted grants, there are even signs of price movement upwards.

ANZ suggest that the Australian housing market will be tested over the medium term on a number of factors. These include:

• Housing Affordability to test record highs because of government stimulus at both federal and state level as well as low interest rates, which may even be cut further. The market will be tested by home ‘upgraders’ (those that are buying their 2nd or 3rd property) and property investors.
• Population growth is at its highest levels in 4 decades. This high population growth is creating a high demand on dwellings which has consequently been proved by very low vacancy rates.
• Housing Supply – There has been a slow down in the development of new housing due to a subdued market, financing difficulties, and higher development costs
• Labour market – the uncertainty of the labour market and where unemployment may fall to is leading some market commentators to think that there may be a lack of confidence in the housing market as home buyers don’t wish to commit to large mortgages when they have uncertainty in their employment, thus reducing demand on housing and housing prices. ANZ state this is probably a second-order influence on housing market outcomes.

ANZ state, “We expect dwelling prices to edge higher for much of the remainder of 2009 with upside risk presenting from intensification of strong fundamentals, a shift in price expectations and a restoration in market confidence.

ANZ Market Balance - June 2009

ANZ Rental Vacancy Rate June 2009

ANZ Affordability June 2009

No Comments »