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It was a shocking suggestion for many. At the annual Australian Financial Review Property Summit held earlier this month, Evan Thornley, the outspoken executive chair of property management company LongView, suggested it might be better for many real estate investors to forget buying homes and put their cash into super instead.
“Typically, they’d earn 6 per cent or 8 or 9,” he says. “And many are earning 6 per cent or less from their investment, so it would make perfect sense. They’d be better off that way.”
Afterwards, however, he clarified his thinking, saying, “The problem is that most people don’t buy a good investment property and that’s the difference.
“A lot of them buy rubbish property. So while capital growth in property might average seven per cent, many investors get under that average – and sometimes returns that are catastrophically bad.
“But then if you buy the right property, capital growth will be much better than super returns.
“So we suggest they invest in our shared equity fund to make sure they’re getting good property, or that they invest themselves in a good, old dwelling on well-located land, as the land appreciates while the building depreciates.”
There are many investors, at the same time, who appear to be heeding his advice to put their savings back into super.
The ninth annual Property Investor Sentiment Survey conducted by the Property Investment Professionals of Australia (PIPA) found a surge in the sale of rental dwellings, with a mammoth 12.1 per cent of investors selling one or more of their properties in the last 12 months.
PIPA chair Nicola McDougall says the main reason is governments increasing, or threatening to increase, taxes, duties and levies on property ownership, while changing tenancy legislation and talk of rental freezes or caps worried many.
“We would like to see some proactive policies from governments to get more people into the property investment market and encourage them to stay for the long term,” she says.
“The vast majority of investors own just one property, and it doesn’t take much to spook them.
“When dealing with an environment that’s already seen a record increase in interest rates, and now talk of new property taxes and rental caps in Queensland so owners can’t increase their returns to help them pay for the higher cost of mortgages, you can understand why some are getting out.
“But we need investors to increase the supply of rental property.”
Yet the returns on property at the moment can be much, much better than the cash earned on super, and it does, of course, also come with tax benefits, says Julian Finch, founder and principal broker at Finch Financial Services.
The key, again, is people buying well.
“They need to invest in a property where there’s good infrastructure in any city or regional area where there might be public service jobs which prop up the local economy or universities and hospitals which create a demand for rentals,” he says.
“If you look at Sydney, for example, there’s been an eight per cent increase in values since January, so, annualised, that will probably be 10-11 per cent for the year, and the forecast is something similar for 2024.
“We’re probably on the verge of another surge in property values so there are potentially much better returns.”
Originally Published: Sue Williams | All Homes | 26 September 2023
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