With changing conditions in the Australian property market and a belief that a correction in the ASX is imminent, the question of where to put your money is as difficult as ever. Here, we undertake a quick comparison between the property and share investment environments to see if one is a better investment option than the other in 2019.
Let’s look at the Aussie property market first. Slumping prices and election fears have given residential property investors plenty to worry about in 2019.
It’s no secret, the big issue in the property market at the moment is the falling prices on houses in Australia. According to the Australian Financial Review, more than 800,000 homes could end up being worth less than what they were bought for. Analysts expect the average price of a home in Sydney to drop below $1 million within the next three months. According to Domain, the median valuefo a house in Sydney has dropped 3.1% over the quarter and 11.5% in the last year. Melbourne house prices are down 10.7% since their November 2017 peak, which overshadows their losses during the 1990s recession.
And things aren’t looking too great going forward. Morgan Stanley believes the outlook for the Australian property market is grim, predicting a peak-to-trough decline after inflation of about 20%. Furthermore, analysts SQM Research believe if the proposed changes to negative gearing and capital gains tax by the Labor party could see house prices drop as much as 12% over the next 3 years. A lot of this has to do with the tightened lending off the back of the Hayne royal commission, which has stifled credit growth and somewhat strangled lending appetite of the major Australian banks.
A recent study conducted by accounting giant Ernst Young found that more than 60% of Sydney residents who purchased properties in the past 25 years would have been better off renting instead and investing their money in shares. This begs the question, is the sharemarket a better place to invest money in 2019?
Well this is difficult because the 2018 Russell Investments/ASX Long-term Investing Report showed that Australian residential property outperformed equities over both 10 and 20 year periods through to 31 December 2017. But in light of the rather gloomy looking property Australian property market which looks set to continue in a downward spiral in the coming years, perhaps the ASX is a better place to invest?
On face value, this would seem like a sensible idea to consider. As of 30th April, the S&P/ASX 300 index was up more than 14% for the year. However, Morningstar predict that within 5 years, house prices will be back above 2017 levels as the supply-demand equation remains in favour of demand. This is especially likely given Australia’s anticipated long-term population of 40 million people.
Morningstar’s Peter Warnes makes a very good summary analysis of the property vs shares debate. He says, ‘Don’t forget, both equities and property are risk assets. At this point in time, for risk assets the balance is slightly in favour of equities, but equities are at a level where property was 18 months ago.’
Indeed, the best place to invest your money will depend on your individual circumstances, stage of life and risk appetite. There is apprehension of another global financial crisis, and further disruption is anticipated in the Australian sharemarket should the Labor party successfully gain power and enact changes to the dividend imputation system, which we have written about previously.
If you want some help creating an investment portfolio tailored to your needs, or if you would like us to review your existing portfolio to see if we can change things for you, please get in touch with the Wealth Depot team.
Source: Morningstar, Anthony Fensom, ‘Property vs Shares: Which is on top in 2019?”