Why invest in Australian real estate?
6 reasons why investing in Australian property is a low-risk profitable option:
1. Above-average returns with a hedge against inflation
On October 19, 1987 the Australian all ordinaries index fell by 46%. For two years following the crash, property values in Australia soared ahead as investors returned to the stability of property.
Comparing various investment sectors over 20 years, it can be seen that property provides returns higher than many asset classes and provides a hedge against inflation.
Australian property has enjoyed consistent growth with an average annual growth rate of 7% per annum in the last 40 years. The doubling in value of properties every 7 to 10 years, compounded with the leverage that property offers, means a phenomenal Return on Investment (ROI).
2. Consistent investment performance
Having one of the most diverse, advanced economies in the world, Australia's GDP growth is expected to continue at a steady 2.5% to 3%, making Australia an excellent investment location.
In the next decade, household size in Melbourne will fall from 2.6 to 2.25 persons.Melbourne's population is averaging growth of 1.1% p.a. and grew faster than Sydney at a rate of 41,200 compared to the latter of 29,800. City of Melbourne households are forecasted to increase by 20,975 in year 2021.
3. Strong future demand
The increasing population and declining household size will generate demand for an additional 620,000 households before 2030. This expanding demand will continue to push property prices up.
The preference for the majority of the population is to move closer to the central infrastructure of major population centres and be nearer to the beach. Rental vacancies spiralling down to the current 1% further reflects the demand for rental properties.
4. Australian tax law offers generous tax advantages to property investors.
Generous tax advantages for investors (Gearing)
5. Ability to Leverage
Leveraging to invest creates higher rates of return on investments. Lenders lend up to 100% on a property, more than against any other asset classes. Why? Many Australian properties are viewed as a low risk investment with promising capital growth. There are some postcodes more favoured by lenders than others. As such, investing is now within reach for most people, as only a minimal outlay is required to secure this asset.
6. Properties Wont Vanish
The most significant difference between property and shares over the last 78 years is that many of the properties upon which that gain is calculated still exist today. Many of the companies upon which the share based returns were calculated on have vanished.
Unlike shares, property is a tangible asset that won't vanish as a result of poor management or obsolescence. On the other hand, companies and jobs that exist today can be obsolete tomorrow. As building and labour costs continue to rise, so will land and property values.
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