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
