Property investment balloons by almost 50 per cent

One crucial sector of Aussies buying property has increased their spend by almost 50 per cent in just the last five years. Here’s why.

Australians think property is the most important type of investment for building wealth, followed by superannuation and savings in the bank, according to a new survey.

The survey, conducted by financial advisory company, Findex, asked 1,000 Australians aged 18 to 64 years who have superannuation funds but are not yet retired to nominate their preferred investment for wealth generation.

Property was by far the top choice, taking 33 per cent of the vote as the most popular investment option. Next was superannuation at 24 per cent, bank savings at 19 per cent, cash at 7 per cent and shares at 5 per cent.

The data was then broken down by generation.

Property was the top choice among Gen Xers (born 1965-1980) at 38 per cent and Millennials (born 1981-1996) at 32 per cent. It was the second top choice among Baby Boomers at 37 per cent (their top choice was superannuation at 40 per cent) and Gen Zs at 25 per cent (their top choice was bank savings at 38 per cent).

Australians think property is the most important type of investment for building wealth, followed by superannuation and savings in the bank. Picture: NCA NewsWire/ Gaye Gerard

AUSSIES’ KEY WEALTH ASPIRATION

Property ownership is a key aspiration for many Australians.

Firstly, it provides an important sense of security and a place of refuge and connection with family and friends.

It’s also the biggest financial asset that most Australians will own in their lifetimes, so it’s very important to select your home wisely to ensure strong capital growth. Property also enables owners to use new equity generated over time to buy other financial assets, such as an investment property or shares.

Baby Boomers have been the biggest beneficiaries of property in Australia. They were able to buy extremely well-located houses on quarter-acre blocks close to the capital cities several decades ago, and have held their assets through several major growth cycles as our population has expanded.

Many are now in a financial position to help the next generations buy their own homes through the Bank of Mum and Dad.

BUYING PROPERTY THROUGH SUPERANNUATION

As mentioned earlier, superannuation is the second most popular investment option among Australians, and more people are choosing to buy investment properties through a self-managed superannuation fund (SMSF) these days.

They are doing this not just because property has proven itself to be an exceptional investment choice, but also because they do not have to start from scratch in saving a 20 per cent deposit.

By the time many Australians are ready to buy their first investment property, they already have a decent amount of savings sitting in superannuation that they can use for the deposit.

If they need more funds, they can put spare money into superannuation and receive a tax break at the same time, which means more of the money they put into super is preserved for the deposit. So, the ‘deposit hurdle’ is much easier to overcome for many investors if they buy through super.

The value of property investments from SMSFs has grown almost 50 per cent in the past five years.

The latest data on SMSFs from the Australian Taxation Office shows almost $49 billion was invested in residential property in the December 2023 quarter. That’s up substantially from almost $34 billion five years ago.

If buying property through super interests you, make sure you familiarise yourself with the rules first. The most important one is that neither you nor any of your family members can live in the property.

You should also be aware that SMSF loans, which are known as limited recourse borrowing arrangements (LRBAs), are typically more expensive than regular home loans. As always, if you are considering this structure for buying property, always get sound advice from your financial adviser.

* John McGrath is the founder, Managing Director and Chief Executive Officer of McGrath Estate Agents