Security in Property

It’s often said that residential real estate offers the security of "bricks and mortar", but let’s take a closer look at why it's one of the safest and potentially most profitable investment markets in Australia.

You never hear of houses going broke, do you? But lots of companies have gone broke.

Even companies previously considered blue-chip companies have gone broke.

Yet even allowing for the ups and downs of real estate values that we hear about, the underlying trend of property prices in the major capital city residential markets has been steady growth.

You don't have to believe it, that residential property is a secure investment.

Just ask the banks.

Banks have always recognised property, and especially residential real estate, as excellent security.

The reason they'll lend you up to 80% of the value of your property is that they know property values have never fallen over the long term.

In fact, the entire Australian Banking system is underpinned by the continual growth of residential property.

Another factor contributing to the security of the residential property market is its size.

It has been estimated by CoreLogic that there are 10.6 million residential properties in Australia with a total value of about $8.4 trillion.

And the total outstanding mortgage against these properties is $1.9 trillion - in other words, the overall loan-to-value ratio of all the properties in Australia is listed on 27%.

But the really special feature of the residential property market is that owner-occupiers, that is people owning or paying off their own homes, own about 70% of these properties.

Investors own the other 30%.

Think about it.... residential property is the only investment market not dominated by investors, and this effectively gives investors a built-in safety net.

Even if all the investors were to leave the market at once, it would not totally collapse.

This 70% homeownership is a huge advantage for another reason- the majority of the market in which we invest does not act according to normal investment criteria or motivation.

If times get tough the majority of homeowners don’t panic and rush to sell as can happen in other sectors such as the share market.

So while property prices do fluctuate over time, affected by supply and demand, the large homeowner market will always underpin property values.

In fact, 53% of Australian household wealth is in housing.

Another factor that adds to the security of residential property as an investment is that you can insure it against most risks.

You can ensure the building against fire or damage and you can insure yourself against the tenant leaving and breaking a lease.

RealRenta has all the tools that a property manager has but for less than ¼ the cost of a property manager.

You can now manage your Residential, Commercial or share/student accommodation property

Join now and the cost is less than a cup of coffee a week to manage your rental property.

RealRenta also has a free vision, so why not check it out.

Jason Gwerder
Thursday, 25 January 2024

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