INVESTING

Aussies have turned their backs on property in favour of these investments

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Property has had a rough time of it during the COVID-19 pandemic, with many investors turning to other asset classes. But housing affordability is the best it's been in 18 years, and growth is on the way.

The dream of owning your own home used to define many Aussies' foray into the world of investing.

That's no longer the case, with more than a quarter of Aussies turning to the share market.

what aussies are investing in instead of property

A Finder survey of more than 1000 respondents found that 27% of Australians invest in shares, 10% in exchange traded funds, 6% in foreign exchanges, 13% in term deposits, while 44% hold cash in savings accounts.

"Australians want to build their fortunes and aren't prepared to rely solely on their income to do it," Kate Browne, personal finance expert at Finder.

"It's a broad spectrum - from those investors who just want to maximise savings to those who are striving for financial freedom."

Fixed income investments are flailing with interest rates plumbing historic lows, so investors are turning elsewhere.

"Low savings interest rates have also driven more people into the share market as they seek to make a profitable return on their investments.

"No matter the goal - it's clear there's interest in a vast array of different investment options - all with different levels of risk and potential returns," Browne said.

However, while low interest rates are pushing Aussies into a range of asset classes in the hunt for yield, it could be a mistake to turn away from property altogether.

Betashares chief economist David Bassanese says home loan affordability is the best its been in since March 2002, "thanks to the overall decline in house prices relative to household income over the past three years and, perhaps most importantly, the substantial reduction in mortgage rates.".

As at the June quarter, the estimated median national house price was $700,000 while the average after-tax income around $135,000. With the prevailing relevant mortgage rate for new around 2.9%, 26.2% of after-tax income would have to be devoted to meeting mortgage repayments on a 25-year loan, compared with an average since mid-2004 of 32.8%.

"The last time our national mortgage affordability estimate was better than this was in March 2002. In the following two years, national house prices rose 36%."

It's a case of affordability today, growth tomorrow.

"What we know from history is that when mortgage rates drop, new home buyers don't just pocket the savings - they simply bid more for properties as their affordability limit has improved."

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David Thornton is a journalist at Money magazine. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.
Comments
Crispy Bart
December 19, 2020 9.27am

I have been a subscriber with Money mag for a while. It's meaningless, one sided articles like this that I struggle to understand. It just looks like flat out meaningless spruiking to main the status quo.

You have determine through one simplified, flawed metric that housing affordable has never been higher since 2002... How you guys pedal this tripe while house prices are in most cases close to all time highs, is beyond me. It's almost as bad as your use of the median income level of 135k(couple 270k?).

All this talk just on the back of this artificial inflation of housing numbers related to Covid. Not long, mind you, after rba has further pandered to assets by lower interest rates to prevent disaster or at best keep the game alive.

A responsible article might at least explore some of the issues around median vs average, the issues faced around job losses & Gov subsidies & payments, historic low levels of immigration vs migration, astronomical personal debt levels, high numbers of building construction in certain areas that could drive prices/rents lower.

Money, I expect a little higher level of journalism if I am going to pay for this. I understand your vested interest in driving asset prices higher at the expense of the social impact & cost. In reality, we would all be far better off without high house prices or climbing prices. If property cost had a much lower impact on family budgets & basic affordability didn't require multiple incomes & additional support, people could focus on more meaningful persuits & aspirations.

I have no view as to whether house prices will continue to rise, but if they do, as a society we should not rejoice. Rather we should look to rectify dire issues of social dysfunction, personal & family struggles & try to ensure children are getting much needed support & 'time' to raise them properly (while households are so focused on financial needs/requirements).

Estelle L
December 23, 2020 8.20am

"If I'm going to pay for this..."

I don't know where you read this but I read it for free on the Money website.

Vince Fernandes
December 19, 2020 4.23pm

What is your source for average after tax income of $135k? Sounds quite high.

Glenda Smith
January 16, 2021 6.53pm

Hmmm. I tend to agree. I've never earnt that type of money. I earnt around $22K last financial year.

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