Australian Property Market Update: Should We Reconsider Investment Properties?

As a country, we love property. Much of the “Aussie dream” involves owning a nice house on a quarter acre block of land. It’s also where we direct a lot of our investment money, with the hope that rental yields will help fund our retirements.

Recently, there has been a lot of talk regarding the housing market. Negative gearing was a focal point of our last election, property prices keep going up, household debt is rising, more developments keep popping up, and there seems to be no end to talks about an imminent property crash.

Through all the mixed messages what can we believe and do?

Is property still a good investment?

It can be, as long as you’re smart about it. Over the very long-term, some houses have the ability to provide similar returns if not outperform the stock market in terms of value, and with much less volatility.

Nowadays, however the huge gains in house prices, low rental yields, and a surge in new developments means you need to be very careful if looking to buy. You will be almost entirely dependent on capital growth for earning power.

Will there be a crash?

We’ve been hearing a lot about a coming property crash over the past 10-15 years, but it has yet to happen. That isn’t to say, however that it won’t happen. Unfortunately, it is very difficult to properly guess when a crash will come. It is also possible that property will only get more expensive over the next few years.

Unless we see a continued oversupply of units, a surge in interest rates, changes to the negative gearing laws, or a recession a crash seems unlikely. The most likely scenario is over the near-term is we’ll have a slow adjustment back to a less expensive property market.

What should I do?

Property certainly has a place in investment portfolios, but it is best to be cautious when considering a purchase. Tenant problems, inflexibility and illiquidity are common problems that arise from owning direct property. You may instead find it better to reduce your debts, consolidate your assets or diversify your portfolio.

Before you make any investments or changes to your portfolio, you may want to consider speaking with your financial adviser to determine your options.