The average Australian psyche is fairly ingrained with property and having your home as your castle. Around 70% of us live in a home we are either buying or have paid off completely. This is one of the highest owner occupancy rates in the world.
This mentality has developed over a long period of time. As a nation built on immigration, the early Europeans were anxious to set their families up and ensure they could have a better life for their children than they struggled through. Bricks and mortar were a key to that as was paying debt down as quickly as possible and leaving property to their future generations. This ideal or dream has continued through the subsequent immigration waves and is now a mainstay of the average Australian and their life plan.
Recently with the Global Financial Crisis in the United States, we witnessed this not being the case as the US has “non recourse lending” which basically meant you could hand back the keys to the property and not be responsible for any debt remaining on it. Here in Australia, that is certainly not the case and anyone who has watched as a bank chases a borrower defaulting on their loan with gusto can attribute. Although we do have recourse lending, ie you are responsible for your debts, this does not seem to be the contributing factor to why we as Australians are fascinated with property and ownership.
The continued performance of Australian property growth and appreciation is well documented, with over a 100 years of records confirming capital growth statistics. The average rule I’m sure you’ve all heard, property values double every 7-10 years in most major cities. This is not set in stone and is extremely dependent on the type of property you purchase. I’m sure those investors who have purchased inner city or tower apartments would wish this be true where an oversupply has stagnated growth and contributed to a higher rental vacancy rate.
The Australian love affair with property seems to now be feeding into the SMSF sector as this type of borrowing grows and people want to control their future retirement assets. As I commented during a previous article, is this artificially inflating the property market? Only time will tell. However when the restrictions around borrowing within your SMSF were lifted, there was a noticeable jump in SMSF lending against residential and commercial property.
A Legg Mason global survey found that Australians invest 10% more in property than the global average and also give property the highest allocation out of all income producing investments.
Do Australian Banks contribute to this mindset? When a borrower can lend 95% of the value of a residential property and around 50-60% against a share portfolio or managed funds, there seems to be a greater security level in property that flows outward.
I discussed Negative Gearing a couple of weeks back and this tax benefit for Australian investors has no doubt contributed to the Australian mentality of property being a sound investment. Depreciation is another factor to consider, which property offers and other investment vehicles do not. The volatility in the share market is also a contributing factor as was the recent GFC where markets were hemorrhaging money yet the Australian property showed remarkable growth. Do Australians love being landlords? That feeling of earning a secondary income while having an appreciating asset?
Are Australians conservative in nature when it comes to investing? The bricks and mortar mentality is ingrained as is the desire to own your own home and have it debt free as soon as possible. With rates at all time lows, it may be some time before investors look towards other opportunities away from the tried and true property portfolio.