Improving market conditions to benefit investors over next year
It has been a tough 12 months for property investors across Australia, but improving market conditions mean their fortunes are tipped to improve over the coming year.
The financial year just done was not pretty for property investors across Australia.
CoreLogic calculated total returns from residential property saw a national fall of 3.3 per cent in the 2018-19 financial year. Total investment returns is the value of growth and gross rental returns.
Last financial year was the only financial year since at least 2005-06 that total national residential property returns were negative.
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The average return over the prior 13-year period was nine per cent, so not too bad at all. The best year was 2009-10 when the national return was almost 17 per cent.
“Housing returns last year were worse than those recorded during the financial crisis and during the 2010-12 housing downturn,” Cameron Kusher at CoreLogic noted, adding it was the combination of falling values and historically low rental yields that had driven total returns into negative territory.
Looking at the Sydney figures, it was the second consecutive financial year during which returns have fallen however, it was a larger 6.7 per cent fall compared to the previous 2.7 per cent fall in 2017-18. They were the only years to record a fall since 2005-06, with the average Sydney return being 10 per cent in the prior period. The best year was 2014-15 when the total return was 21 per cent.
Kusher maintains that with the early signs that the rate of decline in housing values has now slowed and rental yields are rising across most regions of the country, the prospect for total returns improving over the coming year looks a little stronger for some. Sydney, especially, may see an improvement in returns.
While the total returns from residential housing are not looking so attractive as an investment class, residential property is not alone. Try living off cash!
Outside of compulsory superannuation, property and shares are the two most common ways of building wealth in Australia. Investors looking for the best place to invest always face a challenging decision, this year as much as ever.
There are always the push and pull factors of property and shares so choosing the right strategy often comes down to investors’ own time frames and preferences.
There needs to be an understanding of the advantages and risks associated with both. Be aware the ever present debate comparing the returns tends to be seen through the prism of the commentator’s bias.
The Australian share market recently hit an all-time high with the All Ords index surpassing its record in November 2007. Once dividends are allowed for, the Australian share market had actually surpassed its 2007 record high back in 2013.
The Reserve Bank of Australia’s head of domestic markets Marion Kohler noted recently that the Australian sharemarket, once dividends are included, showed an average annual 8.5 per cent return since 1993.
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AMP Capital chief economist Shane Oliver noted earlier this month that going through past bull market highs after a long period below can attract investors into the stock market so it could push on for a bit.
My view is that we shall certainly see an exit of some sharemarket gains into the property market. Perhaps not the influx seen in past cycles, but enough to provide a fillip to the depth of property buying interest.
Originally published as Improving market conditions to benefit investors over next year