Residential property flash in the pan or long term performer?

Author: ME

Published at: 8/26/2016 10:38:22 AM

 

Residential Property More Than Just A Flash In The Pan 

 

Try this quick quiz. Which mainstream asset class delivered the strongest returns over the last 20 years?

 

If you said residential property, give yourself a pat on the back.

 

12-month gains averaging over 9.0%

 

It’s no secret that Australia’s property market has hit top gear in recent years. In the 12 months to 30 June 2015, property values rose by an average of 9.8% across our state capitals. Add in rents, and property investors have pocketed returns of around 14.1%[1]

 

However seasoned property investors know rental properties often dish up their best gains over long periods. Independent research confirms that over the past 20 years to December 2014, residential property trumped other mainstream asset classes to deliver the highest gross (before tax and expenses) returns[2].

 

20-year gains averaging 9.8% pa.

 

Just how good were those gains? It turns out that in the two decades to December 2014 residential property delivered gross returns averaging 9.8% annually. This eclipsed the gains on other popular investments including Australian shares (9.5% annually) and global shares (hedged, 8.6% annually hedged)[3].

 

By contrast if you’d invested your money in cash over that same 20-year period, there’d be far less cause for celebration with returns averaging a yawn-inducing 3.7% annually[4].

 

That’s not to say investing in property means enjoying skyrocketing capital growth every year. Like any other investment market, property can see periods of stable values, and at times, even declining values, though the long term trend is generally upwards.

 

But what of the future?

 

 

Has the investment property market seen its best days following such strong gains? Research suggests that’s doubtful.

 

None of us can accurately say what the future will hold (not even the crystal ball brigade) however according to one industry report, our changing population means we need to build, on average, around 180,000 new homes each year over the long term just to ensure an adequate supply of housing. This benchmark was achieved last year for only the first time in two decades[5].

 

It’s a fair bet that if you invest in a well-located and sensibly priced property, backed by a competitively priced investment loan, you are in a great position to reap healthy long term returns. 



[1]CoreLogic June RP Data Hedonic Home Value Index Results Released: Wednesday, July 1, 2015

Capital city dwelling values 9.8% higher over the financial year at http://www.corelogic.com.au/resources/pdf/indices/indices-release/2015-07-01-monthly-indices.pdf

[2] ASX/Russell Long-term Investing Report 2015 http://www.asx.com.au/documents/resources/russell-asx-long-term-investing-report-2015.pdf

[3] ASX/Russell Long-term Investing Report 2015 http://www.asx.com.au/documents/resources/russell-asx-long-term-investing-report-2015.pdf

[4] ASX/Russell Long-term Investing Report 2015 http://www.asx.com.au/documents/resources/russell-asx-long-term-investing-report-2015.pdf

[5] HIA - A Portrait of Australian Home Prices, October 2014 https://hia.com.au/~/media/HIA%20Website/Files/IndustryBusiness/Economic/research/Portrait_of_Australian_Home_Prices_Oct_2014.ashx

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