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Residential investment property the best performing asset for more than 20 years

The 2017 Long-Term Investing Report commissioned by the ASX and produced by Russell Investments was released just a few weeks ago. Of all the analysis we see on investing this report has the most balanced data available and is based on well researched and verifiable information.

There is no spin in the data and despite the fact that the business of the ASX is to promote the stock market and the fact that they would clearly prefer some of the results to be something other than what is shown in the report, the results are clear. Residential Investment Property has outperformed every single other class of investment for at least the last TWENTY years and by some considerable margin. The fact that the report is published is to the great credit of the ASX and shows that they are a credible institution.

The Long Term Investing Report compares most forms of investment available to Australian investors including Shares, Residential Investment Property, Bonds, Cash, Offshore Investments and Listed Property. The comparisons include before and after tax calculations and showing the relevant results for those calculations based on the lowest marginal and top marginal tax rates. The investment returns are shown both without gearing (borrowing) and with 50 percent gearing. It is worth noting that most investors in residential property borrow far more than 50 percent of the purchase price further enhancing the percentage of return shown in the Russell Report.

In addition expenses such as maintenance and property management fees for residential investment property are taken into account in the comparative analysis as are franking credits and other expenses such as transaction charges (brokerage) for shares. In other words this annual report is a balanced and fair comparison of the various asset classes available to Australians who invest. There is also an analysis of how those assets perform within the superannuation environment. In other words this is a true, no spin comprehensive report on investing in Australia.

But what this year’s investment report, and for that matter every published year before it, highlights is the reason why Australians have such a love for residential property. I guess it would be fair to say that most Australians who own property have had a good experience with property and that is particularly the case where those properties have been held for the long term. Of course residential property is not or at least should not be a speculative investment.

Remember every residential property will be someone’s home. If that property is where people want to live, where jobs are being created, where the population is growing and the intention is to hold the property long term then the outcome for that investment is likely to be very positive. 

Now to the returns in the report. Residential Investment Property, after 50 percent gearing was taken into account, showed 8.7 percent and 7.9 percent consecutively after tax and for the lowest and top marginal tax rates for the ten years to 2016. The returns were even better for the twenty year period to 2016 showing 11 percent and 9.7 percent at the lowest and highest tax rates. It is interesting to note that the returns are higher for the lower marginal tax rate. 

On a final note and in relation to the ASX Russell Report, it should be obvious to everyone that huge property price gains have occurred in Sydney and Melbourne. Those gains have not for the most part been experienced recently in the other capital cities. We believe that the Sydney and Melbourne markets will continue to perform well because both cities have state economies which are performing well and population growth in those centres is very strong because of the job opportunities those dynamic economies provide. 

We also believe that greater price growth opportunities will return in the future in the other major centres. We think Brisbane will be the next growth hot spot when that state’s economy recovers.

A copy of the 2017 Long Term Investing Report is here for you to read when you have the time and the inclination.

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