Is your superannuation enough to give you a quality retirement?
Blogger: Paul Bennion, managing director, DEPPRO
One of the key reasons why many boomers invest in property is that it protects them again the negative impact of inflation.
History shows that property prices tend in increase at a faster rate than inflation over the long term.
For example, the over the past decade, the annual rate of inflation has increased on average by around 2.9 per cent.
In contrast, the average capital growth of dwellings for the combined capital cities in Australia over the same period was 5.9 per cent per annum. So overall, property prices have increased at around twice the overall inflation rate during this 10-year period.
This issue of capital growth and inflation is important for baby boomers, with many of them now pulling their money out of low interest yielding savings accounts and investing their money in the property market.
DEPPRO is finding that these baby boomer investors are planning to retire over the next decade and therefore need to ensure that their investment returns exceed the inflation rate over this period.
While many baby boomers also have superannuation savings, they believe it is not enough to give them a quality life during their retirement years.
With life expectancies now increasing, many baby boomers are also concerned that superannuation alone may not provide sufficient funds during their retirement years, which could now be more than two decades.
Baby boomer property investors have been active in the property market because they are informed about property investment opportunities, and because of their high confidence in the future of the real estate market.
Most baby boomers have been involved in the property market for many years through owning their own home and therefore understand the long-term capital growth rates that property ownership can deliver.
In particular, an increasing number of baby boomers now view property investment as a low risk way of building wealth for their retirement compared to the stock market.
Many baby boomers have been attracted to buying investment properties because they can leverage the large amounts of equity they have in their owner-occupier homes to organise home loans in excess of $1 million to purchase a number of investment properties.
Over the past year, DEPPRO has undertaken property depreciation reports for baby boomers who now own as many as seven or eight investment properties.
We are finding that many of the baby boomers are highly informed about property investment opportunities and how they can fund their investment strategy through taxation incentives, such as negative gearing and property depreciation.
For example, a number of our baby boomer clients receive tax refunds in excess of $50,000 for the first five financial years after completing a deprecation report on their investment property.