Despite the noise, property owners are still winning long-term

Almost to spite the doomers and gloomers such as the international investment banks, the latest CoreLogic home value index results shows that nationally residential property values remain 18% higher than they were five years.

Even the Australian Stock Exchange’s Long-term Investing Report continually reveals why Australians love real estate. In the 2018 report, over 20 years to December 2017, Australian residential property produced an average annual return of 10.2%. In comparison, shares returned 8.8%. Over a shorter ten-year period, property again wins handsomely with an 8% average yearly return compared to 4% for stocks.

No wonder the international investment banks continually obsess about the state of our property markets, which continue to sensibly attract investor capital away from the clutches of their wealth managers.

Ok, the 0.7% decline in national dwelling values in February takes the cumulative decline in the value of Australian real estate down by 6.8% since values peaked in October 2017. However, as CoreLogic suggests, most homeowners remain in a strong equity position, which once again demonstrates why quality, well located residential property remains Australia’s favourite asset class.

Why is property Australia’s favourite asset class?

As we’ve seen time and time again, real estate has proven to be a very stable investment when compared to shares.

Sure, the real estate market experiences cyclical ups and downs. However, property tends to be a lot less volatile than other asset classes. For example, the Australian share market fell almost 3% in a single day in October 2018, and the ASX200 index plunged more than 7% on the infamous Black Tuesday in January 2008 during the Global Financial Crisis.

These share market falls are due to any combination of political or economic factors in Australia or overseas. Share volatility also underlines the fact it takes longer to sell a property, while spooked investors can offload their stocks in seconds, and often for no apparent reason. In October 2018, after the share market selloff, one prominent stockbroker told the ABC, “There was no particular news overnight to explain the sudden market drop.”

Moreover, property is almost always in demand with owner-occupiers such as first-time buyers, upgraders and downsizers. In Australia, it is also a well-known fact that population growth is outstripping supply and we can’t develop housing fast enough. We also have low unemployment, historic low-interest rates, with the prospect of more cuts this year and low inflation. It is this combination of factors that continue to underpin real estate values and long-term growth.