Property or shares? Shares or property? The pair have been slugging it out for the investment crown ever since Adam Smith was a boy.
But today, with market conditions in Sydney, there's an increasingly loud chorus proclaiming property investment the king of the ring, with many more happy returns.
"We see the returns from residential property being above pretty well all other asset classes, in risk-adjusted terms," says economist Dr Alex Joiner, of ANZ Economics and Markets Research, who explains that risk-adjusted means the nominal yield is adjusted for the volatility of the asset class.
"We see the next six to 12 months as a period of softness in Sydney - and nationally - but the overall fundamentals will continue to tighten."
IN THE RED CORNER
Intrinsic to the debate are the recent sharemarket falls. Australian shares lost 13.4 per cent of their value in the year to June 30, even after dividends were included in the market's performance. Listed property trusts fell by a collective 36 per cent.
At the same time, a record low in new housing construction, combined with vigorous population growth, mostly through migration, smaller household sizes and a dozen rises in interest rates since 2002, have created a critical lack of homes.
"The gap between supply [of residential property] and demand will support the market," says Joiner, who puts the shortage for next year at about 200,000 homes nationally. He also compares the returns from equities and property in the graph (see right).
"This gap is set to get bigger over the coming years as pent-up demand becomes more acute and the population continues to expand."
The most obvious result of this is the sharp rise in rents and fall in vacancy levels. In Sydney, vacancy rates are 1 per cent or lower and rents, now at a weekly median of $420, are rising at 6 per cent a year, and "could rise by up to 40 per cent over the next four years", says property commentator Michael McNamara.
There are similar predictions from BIS Shrapnel, which says rents in Sydney will rise by 11 per cent a year over the next three years. In addition, there are opportunities to use superannuation savings to buy property (see right).
This is all music to the ears of investors but there's a welcome encore: we won't be seeing substantial property price falls either. "We don't believe Australian property prices will fall particularly and certainly not on a sustained basis as we've seen in the US," Joiner says.
THE BEST INVESTMENT?
Property expert Margaret Lomas says the key to success is to ask the right questions when hunting the perfect investment house: What's the cash flow? What's the population growth? What are the rent trends? Is the property for sale at its true market value?
"Rental yields are increasing incredibly, which makes being in property now a good opportunity," says Lomas, the founder of Destiny Financial Solutions, who's just released a new book, 20 Must Ask Questions For Every Property Investor.* "It also means that when things do take off, you are already there; you aren't competing with hundreds of others."
But it's vital, no matter which property is chosen, that the investor be in for the long haul, says valuer Gareth Woodham, the NSW manager of the WBP Property Group. "I'm biased towards property as an investment but it's more important than ever to look at it as a long-term investment," he says.
"There are no quick bucks to be made - and anyone who tells you otherwise has an ulterior motive. But with super and shares savaged, now is a good time to secure property for a rental income."
His top tips include property in Kensington in the east, because of its variety of housing stock and its proximity to the university with lots of students wanting rental accommodation; Newtown in the inner west because of its proximity to the city, good public transport and lifestyle facilities; and Hurstville, where there's recently been plenty of money poured into infrastructure.
"I also really like Bankstown," Woodham says. "Rents are around $320 a week for a bashed-up two-bedroom house, so yields are great, plus there's a lot of migrant population growth and good infrastructure."
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