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Where should I invest my money now? - May 2020

By Rich Harvey, CEO & Founder, propertybuyer.com.au

Australia’s historically low interest rates, which fell even further than their all-time lows in response to the coronavirus crisis, means that investors who put their money in cash are seeking next to no real returns at the moment.

And all of the uncertainty both here at home and globally is creating almost daily shockwaves on the stock market. Those investors who back shares have seen their money wiped out.

It’s all a bit dire.

Where can you find a safe, reliable return with good upside value potential? It sounds like something that’s impossible at the moment.

But there’s one investment vehicle that continues to defy all of the odds and the catastrophic forecasts to deliver growth in a very unlikely market. Residential property.


A very wild ride

Interest rates are unlikely to rise any time soon.

In fact, the Reserve Bank has said it expects to stay in a low rate environment for potentially years to come. It’s hoped that low rates will stimulate the economy, which was already flat before the world knew what COVID-19 was.

At the same time, the stock market in Australia – and markets around the world – are stuck on a daily rollercoaster ride with deep troughs and fast rises that are head-spinningly unpredictable.

Whenever our government announces new measures in response to the crisis or unveils economic data that shows just how significant the impact has been, stock values plunge. The horrific situations in the United States and United Kingdom aren’t helping matters either. And the escalating trade tensions between Australia and China, our biggest export partner, are seeing shares impacted further.

The performance of the share market is most sobering when you look at what it’s done to superannuation balances.

In the month of March alone, it’s estimated that super balances lost between 10 and 12 per cent on average due to market volatility.

Over the mid-term, cash – considered a safe bet – has performed terribly. The organisation SuperRatings estimates that $100,000 invested in cash at the bottom of the Global Financial Crisis would be worth about $90,000 today. That’s a terrible outcome over some 11 years.


Safe as houses

In the few months since coronavirus struck, property hasn’t crashed like many said it would. In some cities, the median price has even increased modestly.

But there are good deals because of reduced listing volumes. The short and mid-term outlook is much less dramatic in terms of performance, even with the unpredictability of the coming months.

And the yields right now are considerably stronger compared to both bank interest and most share market returns.

But more than the prospects right now, the likely long-term returns from property are still better than with shares, as property is typically viewed universally as a much safer form of investment.

For Aussie shares, the 10-year return, including costs and after tax, at the highest marginal tax rate, to the end of 2017, was 2.6 per cent. Compare that to the same calculated return for property, which was 5.1 per cent.

And over 20 years, the return for shares was 6.7 per cent, compared to property, which was about 7.5 per cent. You can’t argue with that.

If you’re looking for somewhere to park your money, I’d suggest looking at property. If you’d taken that $100,0000 and leveraged that into a property you could have seen your property almost double in value in Sydney in the past 11 years.


Where should you invest?

Putting some of your investment capital towards real estate right now is a savvy decision, but not all property is created equally.

And there’s potential to make the wrong choice if you’re not basing it on solid research, sound understanding and long-term strategic thinking.

Go to Google and enter ‘property investment advisor’ and you’ll found hundreds of results for businesses that promise to take your money and put it in real estate, with exceptional returns.

There are good operators out there, I have no doubt. But there are plenty of terrible ones. I’ve seen some of them advise clients to put their money in a stock standard house-and-land package in far flung, city fringe suburbs. They’re in the sticks, miles away from business and community hubs, usually poorly serviced by transport facilities, and with little-to-no future value growth prospects.

I see others that back risky investment models like student accommodation – currently bleeding investors dry – or regional towns that hinge their prospects on mining or seasonal tourism.

In my view, seeking out solid suburbs in major cities where population growth, demographic shifts, gentrification and infrastructure development are on the cards is a much safer bet. They’re pockets that are likely to perform well in the mid- to long-term because they’ll be in continued and increasing demand among both buyers and renters.

There’s room to add value and capitalise on change. There’s a good mix of housing types that meets the needs of both residents now, and into the future. They’re well-located, pleasant and convenient places to live, and have good lifestyle amenity.

A buyers' agent is also your property strategist. Their role is to source you the best property in the best area at the best price and manage the entire process on your behalf.

But they can work with your financial planner, advisor or accountant, operating within the parameters of your strategy and future goals, to unveil the real estate option that best suits you. They can take the grunt work out of sorting the diamonds from the rough, tapping into extensive networks and relying on intimate knowledge and experience to secure deals that often don’t make it to market.


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