Why do Australians prefer property over other investment vehicles

I'm in the process of putting a report together for property investing.
There are lots of investment vehicles out there, business, shares, precious metals..

Property tends to be one of the all time favorite investment vehicles for many reasons, easier to finance, does not require a lot of skill (compared to business), can actively add value.

Just want to see if I'm on the right track with general thinking.
what are some of the reasons you like to invest in property compared to other investment vehicles?

X

 

I think part of it is that it's the easiest one to get your head around, there's safety in numbers with everyone knowing someone who has bought property (and in a traditionally risk averse country this would play a fairly big role imo) and looking at it from a broad, long term POV is pretty low risk compared to other options imo.

this is not to say that there aren't people who truly do maximise things and do very well but ultimately there are a fair few people out there who are not otherwise money or investment savvy, had no strategy or planning etc when they bought an IP and have done ok. the same approach with shares or a business would have a greater rate of failure imo and so people hear about less IP failures proportionally than they would share or business failures imo.

 

what are some of the reasons you like to invest in property compared to other investment vehicles?

1. Relatively lower risk
2. Easier to access funds to leverage
3. You can swing the 'house edge' back to your side dramatically, by doing a few things that most of the 'players' don't do.
4. A lot more control over the asset when compared to other vehicles
5. Its a unique asset that most people want and value, unlike a $5 stock which most ppl don't care about.
6. Building wealth from the asset is not completely reliant on the market, and there are ways investors can take almost complete control of the asset to increase its value by changing, improving, expanding its use.

 

We have probably done just as well from shares within superannuation as from investment properties. Advantages and disadvantages for each.
Marg

 

• Leverage
• Value addition / control of asset.
  
• Availability of cheap credit, not easily available to other asset classes.
• Lack of skill. Easy to outsource various functions
  
• Less risky as supported by government.

Are reasons for not investing in property permitted ? I have a list

 

For me it's more the stigma attached to negative gearing.

Knowing there is a political party, and a great many people, opposing negative gearing brings out the rebellious bogan in me.

Sure, you can negative gear other investments but they are unlike IPs. A share certificate is A4 size. An IP could be 1000 sq metres. There's more tangibility there. You can evict a tenant. Try evicting a board of directors. You'll need a squillion dollars.

With an IP, an investor has more control......rent, improve, sub divide etc. What can you do with a share certificate? put a BA in to council for an extension? lol

Also, you can drive around the 'hood and point out your IPs to friends and relo's. Beats showing them bits of paper with some names and numbers. My relo's can't even read.

All in all, I strongly feel a lot, but obviously not all, investors go for property for the brag factor.

 

Sure, provide the "do not" list.

 

A portfolio of resi Ip's provides many options. From releasing titles to drawing up equity to invest in higher yielding asset classes. Strategies such as debt recycling can be used. Ip's are a relatively safe way to build and store wealth over a long period of time, making them a suitable asset class to pass onto children.

 

Another reason to invest in property is versatility. Some say that you can't sell a room, whereas you can sell a parcel of shares. But if you have more than one IP, you can sell one or a small proportion of your portfolio should you need or want to. You can also move from one property to another, rent out a PPoR when you live overseas, or accommodate family members as your circumstances change. None of this can be said for stocks and bonds, shares, gold or collectibles.

 

It doubles every 7 years

 

I think the reasons are multiple...

1. Access to finance - This is by far the biggest, imo, property is far easier to borrow to purchase at a much lower rate than any other options. The ability to leverage at much higher rates than other investments makes it a very obvious choice.

2. Government protectionism - It's a highly protected investment vehicle, far more protected than any other investment in Australia. The exemptions from wealth tests, capital gains concessions, negative gearing and borrowing rules, among others, all make it a very sound investment, hence the old saying "safe as houses".

3. Simplicity - Property investment requires no real skills at it's most basic level and those skills which it does require at higher levels are easily learned and put into place. All other investment types require more specialised knowledge.

4. Media - The media has created the perception that property doubles every few years and that it's foolproof, this perception makes it far more of a target to the common investor. Further to that they also downplay most other business classes which further separates as targets. You only need to look at the common news sites, they all have a real estate section while all other investments get lumped into the business section and get bit meal coverage. (there is some chicken and egg in this, naturally).

5. Provides a need first - Obviously a large portion of property investors start with their own home as the initial investment, obviously this alternative use for the asset pushes it well ahead of basically every other asset class for additional utility, a lot of people probably buy their first investment as something other than an investment.

6. History - Australia has never had any kind of property market failure or even really a bump in the last 30 years. It could be hubris or it could just be how the market operates, either way when you have entire generations who've never seen property even look backwards nevermind take a backwards step there is a herd mentality generated by the previous success. Everyone knows someone who went into business and failed, you have to look hard for someone who failed in property and you'll almost always find that they failed because of their actions not the property market as such.

Ultimately it's been the most successful investment vehicle in Australia though and that success will draw more and more people in, you don't have GFCs or the dot.com crashes that everyone vividly remembers with the share market and most people are risk averse so property draws them in. When you have something that is both the most successful and the easiest option, it will draw extra attention.

 

agree with your post overall.

with the above point, the vast majority of australians are not able to be remotely close to self funded retirees let alone independently wealthy so do you think thats because the most successful and utilised investment vehicle isnt actully that great for most people using it or is it a case of operator error? i suspect both personally but realise thats a matter of opinion and hard to quantify

 

Culture. This is an inherent demand driver.
Australian dream has long been equated to property ownership.
American dream has been equated to business ownership/entrepreneurial pursuits. .
A lot of asia eg india its gold
Etc...

 

I would say the simplest reason is the ability to invest in something that is tangible - bricks and mortar. For many people their biggest 'investment' is their PPOR so why not follow that model and buy an IP.

 

It's the only investment that worse comes to worse you can at least live in.

 

Easiest asset class to get leverage. You'll never get 90% lvr for equities.

The real reason is lack of alternative options aside from shares. We all have shares in our super, fixed income products is pretty much non existent.

I have quite a few American friends and real estate to them is just one option, their investment market is a lot deeper. Plus at a risk being too generalized, a bit more entrepreneural and always looking to start or invest in a real business.

 

I'd tend to agree, there is an added element of that we haven't actually had a generation reach retirement that actually "aimed" to be in that position either, even baby boomers are largely of the opinion that they should get a government pension and thus there isn't a good reason to actually self fund retirement. Gen X is going to be the first generation to reach retirement that actually thinks that being self funded is "required".

Think of the amount of those who've used property investment to constantly upgrade their main residence, the obscene protection around the main residence as an asset has had previous generations horde their money into that particular investment. How many people sell their investment properties to upgrade the main residence as they head towards retirement. It's the direct reason that their is massive objections and media outrage generated whenever anyone suggests that the main residence should be included in means testing for government handouts or that we should move from stamp duty to land tax (despite pretty much conclusive studies that land tax is better in every way), generations have horded their wealth into that non-productive asset because it's been 100% protected from any kind of taxation and it's exempt status for all testing has meant you can horde millions into an asset and still get your government handouts.

There is also the risk averse part coming into play, people make on successful investment and then don't go any further down the path because they're now risking more to continue on the investment path. You only have to look at Australia's love affair with insurances to see just how risk averse we are as a population.

 

this part is very true. Compared to other oecd countries especially the US, its very risk averse here. Over there, the govt encourages you to take risks. Sometimes it backfires like it did in the gfc..other times it results in the likes of microsoft , apple, google etc.
Averaged over a period of time, the value created by the second category very far outwieghs the value lost by the first.

 

Compulsory Superannuation commenced in 1992, it would be reasonable to assume baby boomers would access old age pension.

 

This makes no sense. You're saying that if something isn't compulsory it shouldn't mean anything? That if you had 40 years of working, you shouldn't have to save any amount and rely solely on the next generations taxes? Geez that's......wait.....is that......entitlement?!

Of course I'm being facetious. Superannuation existed well before the 1970's, and the concept of looking after yourself existed from the time you could exploit the younger generations then pull the rug-out as you pass away. But they were self-made I tells ya.