goodbye young aussie home ownership, page-202

No I was not referring to stock options. I don't use them regularly, although in unique circumstances I would consider them.

What does your financial planner say?

Acorn

I apologise in advance for the general nature of my reply, I wont put up charts and comparative notes of property vs other assets, anyone interested can do their own research.

I think diversification for anyone is a good thing, but many people that owned property were burnt by any share holdings(either inside or outside of super) during the GFC pushing more people into the property market because they viewed property as a low downside risk, low volatility risk option, which it was, and has remained,
so now more "mum and dad" SMSF money is steadily flowing into the residential property market trying to find a home as well, which is also helping support prices.

The smart money has been using super to buy property for many years now,both in commercial and residential arenas, but residential property SMSF exposure is going mainstream and fast.

What I am getting at is that 2 of the great things about property is easy access to leverage and its sheer simplicity as a wealth generating asset class.

It's biggest drawback from my perspective is it's liquidity.

In popular areas in Sydney liquidity has not been a problem at all, stacks of buyers, and this has been the case for a very long time, but I am extremely and uncommonly risk adverse, property ticks all my boxes except that one.

This may seem contradictory as real estate has been attracting some level of risk adverse capital for generations, but there is a qualitative element to my risk analysis that keeps me out of property investment.

For anyone that does not have the knowhow to increase their wealth using non property related investments, I don't blame them for "panic" buying, the overwhelming majority of new property participants are afraid they will miss the boat forever, if they haven't worked it out for themselves they probably have some overanxious parents advising them to get in now before its too late, and the anxiety is spreading and the amount of 20 somethings I come across interested in getting into the property market now is staggering, everyone wants to climb the ladder from the boomers all the way down.

Where I live, any property portfolio of at least 2 properties easily makes you a multi millionaire, and unless your net worth is 20 million plus, its hard to manage the risk of one asset concentrating that much capital.

Share investment is much more challenging if you want to outperform the market, and infinitely more time consuming because of the scope of the variables involved.

I am not a property bear and I don't think the "bubble" will burst necessarily, there is a stack of support for property in this country, so perhaps more of a "slow hiss".

No one I speak to even considers a 20% decline in property to be a possibility, at all, EVER!

When you look at any asset class over a MULTI DECADE SPAN, this is just unheard of, as a 10-20% decline is normal, and actually healthy in any asset class.
Even other "robust" property markets like the Canadian and Hong Kong markets are headed for trouble IMO.

The following charts are by no means perfect examples, as they have different time frames etc, but the principle is the same, look at any chart and you will see price declines.

Notice the natural correction of prices in Toronto

Notice the natural correction of prices in Hong Kong

Notice no correction in China since 1995

Notice no significant correction in Australia

Notice that our financial sector market cap combined is bigger than the EUROZONE fincancial sector combined. Eurozone population over 500 million persons.
And silly me thought that Switzerland was one of the banking capitals of the world.

Notice a massive vested interest in keeping real estate investment alive in this country, and also a massive potential vulnerability.

The natural market system/model is likely broken, or we are in the midst of the biggest real estate bubble in Australian history, no one can know for sure at this point, except that existing holders of property are sitting on massive gains.

Now PERHAPS the chart of Aussie property from 1970 with a 9% compounded growth will continue, that would be one really impressive smoothing of returns over time.
Maybe it is justified that Glen Stevens is paid more than Ben Bernanke.

At some point I will consider adding property to my portfolio of assets, but unlike many others I believe timing is just as important as choosing correct sector exposure.


GLTA