- Sydney’s Mortgage Market Trends: Capitalizing On Profit Opportunities
- Mpa 23.02 By Key Media
- Stunning Country Estate In Sydney’s Northwest Hits The Market For Up To $10m
Sydney’s Mortgage Market Trends: Capitalizing On Profit Opportunities – Director, Consultant Services & Head of Digital Assets. Certified Bitcoin expert with over 17 years of experience in the ETF market. Passionate about the future of money.
, and although house prices have declined from recent highs, they are still above pre-Covid-19 levels. With less than 2% rental vacancies in most major cities
Sydney’s Mortgage Market Trends: Capitalizing On Profit Opportunities
, and tracking annual inflation of around 6% – as shown in the chart below – conditions in the Australian property market are tough, for both home buyers and investors.
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Australia has a well-known love affair with property, and many Australians have a firm belief that its value never declines. However, not everyone has the minimum required to put a deposit on a property and get a mortgage.
This has many people wondering if it makes more sense to invest in the stock market or dive into property? Despite modern trends, this is an old debate.
Let’s explore some of the similarities and differences between asset classes, and some of the pros and cons to help you in your research.
A 2015 research paper from the San Francisco Federal Reserve titled Rate of Return for Everything looked at nearly 150 years of data to reveal long-term returns across a range of asset classes and geographies. Australian houses returned 6.37% p.a. in reality over the full data sample, when the stock returned 7.81% p.a. Looking only at data since 1950, housing did better, returning 8.29% p.a. against 7.57% p.a. for stock. However, looking at the most recent series since 1980, the pendulum swung back the other way, with stocks returning 8.78% p.a. against 7.16% p.a. for housing
Mpa 23.02 By Key Media
Comparisons have their limitations of course. The return can vary depending on the time period chosen, and you can divide the assets in different areas, or shares in different sectors. It is important to remember that there have been periods of rapid growth for both types of assets. Returns change even more once planning and costs are introduced into the equation. Also, it is important to remember past performance is not an indication of future performance.
Regardless of how you slice the data, it’s clear that equities and real estate have produced impressive long-term returns.
In the 12 months to 31 May 2023, the A200 Australia 200 ETF , which invests in 200 of the largest companies by market capitalization listed on the ASX, paid a distribution yield of 6.5% plus trust credits. There are also a variety of exchange-traded products that aim to increase returns from stocks.
The property can also generate income, provided it is occupied. In Sydney, houses offer an average rental income of 2.8% p.a., while units offer 4.1% p.a. It’s a similar story in Melbourne, with houses offering an average rental income of 3% p.a., and units offering 4.5% p.a.
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When you own a property you must consider that there will be annual maintenance costs associated with repairs, maintenance, and improvements. If you use a property manager, there will be costs associated with that as well.
Other costs associated with starting your search and initial purchase include search fees, pest and building reports, legal and conveyancing fees and stamp duty.
The cost of property maintenance can be unpredictable and can end up being very high if something unexpected happens.
With stocks, depending on how you decide to invest, there may be transaction costs when buying and selling, such as brokerage. In addition, if you use an advisor or broker, there may be advisory and portfolio management fees or expenses, which are usually calculated as a percentage of the value of your portfolio. If you use fully managed funds or exchange traded funds (ETFs) to gain equity exposure, there will be management costs included in the price of those funds, although ETFs generally provide a cost-effective way to gain exposure to stocks.
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For example, the A200 Australia 200 ETF offers exposure to a diversified equity portfolio for as little as 0.04% p.a.
It is not easy to get the deposit required to get a mortgage. Typically, unless you put down at least 20% of the purchase price, there will likely be an additional cost of mortgage insurance. It can take years to save these costs – and then, of course, take on the commitment of mortgage payments that have to be made every month.
In contrast, if you are willing to invest in stocks, you can start with as little as $500, or even less (depending on your broker’s trading limits). All you need to do is open an account with the trading platform.
One of the easiest and most cost-effective ways to access stocks is through ETFs. ETFs are funds that can be bought and sold on an exchange such as the ASX. Instead of buying shares in a single company, ETFs allow you to gain exposure to a basket of stocks or other assets for a single business.
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With stocks, you can invest in companies run by some of the most influential people of our generation – Warren Buffett, Jeff Bezos and Mark Zuckerberg come to mind when thinking about the founders of companies that rule the world and continue to grow and improve their businesses. As a shareholder, you can own a part of these businesses without being involved in their day-to-day operations.
When investing directly in property there is more hands involved. You can take on being a landlord yourself – or you can hire a property manager, which reduces your workload but comes at a cost.
1. Leverage – This can be a big winner in property investing. The most important indicator for an investor is your return on investment. When you buy a home, you usually borrow a large portion of the cost. Assuming you put down 20% of the property’s value, you get an 80% return. So your income (or loss) is multiplied by a ratio of 4:1
Of course, you can leverage your stock portfolio to some extent, but far fewer equity investors than property investors leverage their investments. This may be due to the possibility of side phones, which you do not get with the property. Equity investment loans (known as equity loans) typically charge a higher interest rate than equity loans.
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2. Add value – You’ve no doubt heard the saying “buy the worst house on the best street” – the reason being that with a little TLC and hard work, through renovations, improvements and additions, you can add value. the value of your property.
1. Diversification – while property investors typically invest in a very small number of properties, participating investors can easily spread their money across a wide range of investments. ETFs make this easy. ETFs allow you to easily diversify your portfolio without buying multiple companies in multiple sectors and asset classes. You can invest in many companies in the broader market or find a niche for a specific sector or ‘theme’. Using ETFs, you can also gain exposure to other asset classes, such as fixed income, commodities and currencies.
The DHHF Diversified All Growth ETF is a direct investment solution that provides low-cost exposure to a diversified portfolio comprising Australian, global developed and emerging markets equities, in a single ASX trade.
BGBL Global Shares ETF offers a simple and cost-effective way to gain exposure to an index comprising approximately 1,500 companies in developed markets around the world (ex-Australia) with a management fee of just 0.08% p.a.
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2. Liquidity – ETFs are generally very liquid, meaning they can be easily bought or sold when the need arises. If you sell your units, the proceeds are generally available two business days later. This is a great advantage if something unexpected happens and you need to access your money. Compare this to the time it takes from deciding to sell an investment property, to the time you receive the sale proceeds. Plus, if you don’t need all your money, you can’t just sell the bedroom!
Investing is not just about which type of asset gives the best returns. You need to consider the risks associated with the property, and your personal circumstances such as your goals, financial situation, risk appetite, and age.
Diversification across different asset classes is important. An effective investment portfolio should have exposure to a variety of assets and geographies, which may include stocks and real estate. Fortunately, ETFs provide an easy way for investors to build a diversified portfolio of stocks while reducing acquisition and management costs.
There are risks associated with investing in the Fund, including market risk and index tracking, as well as international investment risk and currency risk (for DHHF and BGBL). The value of an investment can go up and down. Investments in Funds should only be made after considering your specific circumstances, as well as your risk tolerance. For more information about the risks and other aspects of each Fund, please see the Product Disclosure Statement and Target Market Determination, both available on this website.
Stunning Country Estate In Sydney’s Northwest Hits The Market For Up To $10m
References: 1. RBA cash rate target 2. New thinking on the rental market 3. Please note it is important to consider your
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