The “great Australian dream” of owning a home on a quarter acre block of land in our capital cities is slowly eluding more and more people, particularly younger people, never mind purchasing an additional investment property.
Australian Investment Property Market
Country and, more particularly, coastal regions have also seen substantial price increases as many people head out of the cities for cheaper, more relaxed lifestyles.
The dream of a quarter acre block has given way to flats, units, townhouses and in recent year’s, apartments.
As homeownership eludes more and more people, renting is on the increase. In 2005/06 28.5% of the population lived in rented accommodation.
Investment sentiment has shifted focus over the past 15- 20 years towards shares, investing in companies listed on the ASX. However, the Australian share market is only valued at about $1.5 trillion.
The Australian residential property market, however, is worth more than $4 trillion, a significantly more substantial market.
Why the shift in focus?
The answer is relatively simple. You can invest in shares for a small amount, you can trade them actively at a very low cost, you can get income in the form of dividends from many stocks, you can diversify to minimise risk, you can trade online and so on.
Supply and demand keep pushing residential property prices ever upward in our cities often beyond our ability to afford and there are serious limitations not found in share investing.
Price is the major problem for would-be homeowners and investors alike in purchasing a property in the first place, and the borrowing commitment this entails.
A property can be both a place to live and an investment, and there is the quandary.
Conventional investment wisdom dictates the application of an asset allocation strategy to diversify investment and reduce asset class exposure risk, as well as to maximise returns, hence the expressions “not putting all your eggs in one basket”. Asset allocation is applied in consideration to the investors ‘risk profile’, in other words, how much risk the investor can comfortably live with. It also relates to lifestyle, time horizons, health and other considerations.
Investing directly in shares is relatively simple and can involve an investment of only a few hundred or a few thousand dollars. An investor can buy shares in several companies for a relatively small amount of money and this can be done online via a number of brokers.
Buying direct property is more difficult and generally involves an investment of several hundred thousand dollars without the benefit of diversification, and for most involves gearing or borrowing a large proportion of the purchase price.
The cost of purchasing a property is also high, in the form of stamp duty, and in most parts of Australia, this can be as much as 5.5%.
Because Domacom’s property exchange will be a widely held trust, it is anticipated that stamp duty is not an issue for the fractional rights on the issue, other than for the initial purchase.