Why would you bother investing in property?
By Guest Blogger, Peter Koulizos, property lecturer and author www.thepropertyprofessor.com.au
The vast majority of Australians do not own investment property. Maybe the vast majority of Australians know something that I don’t. I thought that investing in property was a good thing. Mmmmm!
Many property investors have investment property to help secure their retirement. If most Australians don’t invest in property, they must be considering using other forms of income/assets to fund their retirement. Let’s consider these other forms of income/assets.
Old Age Pension
Some Australians might be happy to live off the old age pension. At the moment, the single person’s pension is approximately $25,000 per year and if you’re a couple, it is about $35,000 per year. If they can go from an average Australian full-time salary of about $80,000 to less than half of this if they are solely dependent on the pension at 65 + years of age, good on them.
The reality is that if you are working, you should have some superannuation that you can use in your retirement. I don’t know about you but I have been contributing to superannuation most of my working life and there is no way in the world that I can live solely off the proceeds of my superannuation. After 30+ years of contributing to superannuation, there is not enough for my wife and me to live comfortably in our retirement years.
It is at around this time of year when you should be getting statements from your superannuation fund. You should look at it closely and try and work out if super is all you need in your retirement.
The two most popular assets to invest in are property and shares. Even though I know a fair bit about property, I also know something about shares as I own some shares and a few years ago I co-authored a book titled “Property vs Shares”.
A basic investment principle is the more risk you take, the more return you should expect. As shares are generally considered a riskier investment than property, you should expect that shares have had greater capital growth than property. If you have invested in shares for your retirement, I wonder how they have performed over the last 30+ years.
In the following simple analysis, I am not comparing dividend returns with rental returns; I am just looking at the capital growth.
Since 1986, the S & P/ASX 200 has increased almost 5 times. That’s pretty good but I wonder how property has performed during this time?
Surprisingly, all the capital city house markets have performed better than the share market. However, there are some stellar performers.
Since 1986, Perth house prices increased just over 7 times. This is amazing when you consider that Perth property prices have been virtually stagnant for the last 10 years!
Since 1986, Brisbane house prices have increased 8 times.
Since 1986, Melbourne house prices have increased almost 10 times.
Since 1986, Sydney house prices have increased 10 times.
We are not all fortunate enough to have invested in Sydney property during the last 30 years but if you want to live comfortably in your retirement, you’d better check your super and shares!