In the case of property, the chances are that your $500k portfolio is just one illiquid asset. If you decide you only want $400k in property, you can’t very well sell off one bedroom or the kitchen.
Diversification is nigh on impossible.
For most property investors, you can only access property with excessive leverage, over 30% of Australian mortgages being written today have loan to value ratios of over 80%.
Property needs constant attention. It needs painting, the garden needs upkeep, the appliances need repair and replacement and you have to pay council rates and property rates every year. If it’s tenanted, you’ve got people to manage, or a property agent who’ll take a decent clip of the rent to remove that headache for you.
The transaction costs of buying and selling bullion pales into comparison versus the stamp duty, legal and agency fees required to buy a property, as well as the fees to a sales agent you’ll pay when and if you sell.
Property has been in an incredible bull market for over 30 years, and prices on a national basis are at a new all time high. As a general rule, if an asset has gone up for 30 years almost uninterrupted, ask hard questions before throwing your money at it.
We’ve all heard the saying about the sky being darkest before the dawn, but in this case it’s worth reminding readers that a star burns brightest just before it bursts.
That could well be where we are now with the Australian residential real estate market, as this bull market in property has taken it to truly historic valuations, well above long-term averages versus national incomes or versus rental yields.
In the last decade alone, house prices have gone from merely 4 times the average annual income to over 7 times. They’re closer to 10 times the median income!
Yet another reason to be cautious about property as an investment right now is the sheer volume of advertising by large financial players talking about the ‘opportunity’ for Australians should they choose to invest in housing, and the number of ‘experts’ stressing that there is definitely no bubble in Australian housing, just like ‘experts’ in the US, the UK and Spain in the 12-24 months before their respective housing markets imploded.
