Property is a unique asset class. Contrasting with stocks, bonds and returns are based on rental income (rather than dividends) and the ability to leverage a significant portfolio is far greater than other types of investment. Unlike other forms of investment, it is tangible and allows a larger degree of control for the purchaser.
While being a drastically different form of investing, property has remained as one of our best performing asset classes for decades. The historical growth rate of our residential market has rivalled the movements of shares, while vastly outpacing the growth of stocks and bonds.
The above data has been taken from the ASX and Russel Investments 2016 long term investing report, it gives insight into the long term growth trends of numerous investment facilities. In the 90 year period between 1926-2016, residential property increased at an average of 11.1% per annum, shares at 11.5%, Australian Bonds at 6.9%, followed by cash at 5.6%.
Throughout the period, property remained one of the most stable forms of investment. There hasn’t been a property crash in 130 years. Australia’s capital city economies are stable, evolving and high performing by global standards, which insulates the property market from volatility and has resulted in steady and consistent price growth for decades. On the other hand, the GFC wiped away more than 50% from the ASX 200 over a sixteen month period, ensuing in the greatest financial disaster since the depression.
The nature of property investment also allows buyers to leverage larger portfolio’s more easily. As banks and major financiers see property as a safer form of investment, they are willing to offer credit to purchasers at a much higher loan to value ratio (often at 90%). The result of which allows buyers to hold a larger asset base within a growing market, ultimately providing stronger higher growth rates.
So, when we take a long-term perspective to compare asset classes, it’s obvious that property comes out on top. Residential properties will forever be needed to accommodate our rapidly growing population. Consequently, it is likely that this performance will be replicated for years to come.