We are living in uncertain times. That’s for sure. Everything around us is changing. The rapid advancement in technology and the upheaval that technological change is having on industry and our lives is mind-boggling, especially if you are a little older. Our children and grandchildren have a good grasp of the new technologies and to them, everything is quite normal, google or Siri, switch the light on or play this song. But change and rapid change makes many of us nervous and uncertain of what will come next. Many of us in this situation tend to sit on our hands and wait for the air to clear. Waiting and hoping to have clarity around the direction of the markets.
Despite the current uncertainties, Australia is still doing ok. Of course, there are plenty of comments, especially in our media, talking down the economy. Negative press sells media as we know. However, the real situation is somewhat different. Basically ninety-five out of every hundred people who want to work in Australia have a job.
If you are aspirational and are planning to succeed you have to save and invest some of what you earn into assets that grow in value. For your future, this will provide you with an independent lifestyle in retirement. That’s certainly what most people want and aspire to. Other than investing in ourselves, upgrading our skills, furthering our education or building a business, there are really only three investment options: cash (money in the bank), shares (where you invest in a company) and property (residential, commercial, industrial).
In the past investing in cash was one of the safest and best things to do. I don’t think anyone would suggest money in the bank, with interest rates as low as they are currently is a good investment. There is also a further risk of lower rates still to come. We are being told that interest rates may be low for the foreseeable future. That leaves us with the growth asset options of shares and property.
When you invest in shares you are actually buying a part of a company. Given that the world is going through a technological revolution, perhaps similar to the changes which occurred during the industrial revolution, some companies which adopt innovative strategies and the new technologies will outperform the market. However, many will not and will cease to exist in the future, leaving those who invested in those companies very disappointed.
Picking companies to invest in is not easy. Even if you do pick well, you are dependent on the decisions made by the managements of the companies you buy the shares in. In these times, a bad decision can lead to massive falls in the price of the shares of a company. In addition, if the shares are paying a dividend, which of course will form a part of your future income, those dividends can be suddenly reduced or not paid at all depending on how the company you invested in is doing.
Which leads us to property and in particular to residential property. Australia is a great country and most people in the world would give anything to live here. We are incredibly fortunate which is why we still have substantial population growth. Many older industrialised countries in the world – think of Japan, France, Germany – are struggling to maintain their population growth to provide an economy that will support their aging populations. Those economies are struggling and often their young people want to migrate to the newer growth economies, of which Australia is one.
With sustained population growth comes increasing demand for residential property. Guy Debelle, Deputy Governor of the Reserve Bank of Australia recently predicted that there would be a shortage of residential property in Australia in 2020. That is because the population of Australia has continued to grow at the same time as the construction industry has been in a downturn and with far fewer residential properties under construction or in the planning stages.
Residential properties to rent are experiencing particularly low vacancy rates. This is the case especially in areas where people want to live. Rental returns of between 3 and 5 percent are easily achievable. When you add to that the potential for capital growth of the property, those returns are so much better than you can get if you put your money in a bank. The returns are also far safer than investing in the share market where technological changes are likely to play havoc with many companies and affect both their share prices and dividend yields.
Our specialty is in picking properties that offer our clients long-term wealth creation opportunities. This is based on working individually with you to hand-select quality properties that meet your needs and our strategic guidelines for safer property purchases.
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