Despite tougher lending rules and slowing price growth in some major cities, property remains a safe and stable investment.
Blogger: Ben Kingsley, chair, PIPA
It’s been a whirlwind year for Australia’s property market. From the potential removal of negative gearing concessions, to weighty lending policy changes and warnings of a massive apartment over-supply in some cities, it’s been hard for investors to know where the market is heading.
Despite the uncertainty, property still makes for a good investment vehicle for many Australians. Well-selected residential real estate has proven to be one of the best ways of providing income and/or capital gains over the long term. And there are still opportunities to be found for the smart investor.
Yes, property is still a good investment from a long-term perspective. And here’s why:
1. Low mortgage rates – The RBA has already announced two rate cuts this year and many economists are predicting another by year-end. Moreover, economic consensus is that the cash rate will remain low for the short- to medium-term. All of this means that, despite APRA’s focus on monitoring investor lending and some increases to investor lending rates, the cost of borrowing remains incredibly compelling by historical standards.
2. Capital growth and passive income – From a returns perspective, property offers the potential for capital appreciation over time, as well as passive income in the form of regular rent. This combination is excellent for long-term wealth building prospects and for generating a passive retirement income.
3. A stable investment – Property has proven itself a very steady investment, compared to many other popular assets such as equities. While both have delivered relatively similar overall returns to Australian investors over the years, property has shown much smaller price fluctuations and lower volatility. According to the ASX’s 2016 Long-term Investing Report, Australian residential investment property averaged an 8% return per annum over 10 years to December 2015, making it the best performing asset class over this period.
4. Easier to understand – Property tends to be easier to grasp and it is this simplicity combined with its tangibility that makes it appealing to many investors. It is an accessible, trusted source of wealth that can help just about anyone build a better future. All investors and home buyers can touch it, understand it and feel in control — and this is very attractive in the current volatile global market.
5. Government incentives – Despite the ongoing prospect that negative gearing and capital gains tax concessions could be changed, for now these taxation arrangements continue to support investors to build wealth. And there are still other incentives that make property attractive. For example, first home owner grant schemes are still offered in all the states and territories, generally for new properties. If you’re looking to scale the property ladder for the first time, it can be worth starting off as an owner occupier, to take advantage of these incentives.
As with any investment, there are of course some risks associated with property investment. Success requires a strategic plan and careful planning around borrowings, taxation and minimisation of risks where possible, given the amount of money involved. Speaking to a professional and appropriately qualified practitioner to ensure a diligent, strategic approach to property investment is the best way to ensure your investment is a smart one.