Property downturn will hit hard, experts say

by Maya Breen29 Jun 2015
The household net worth of Australians rose to $8.09 trillion at the end of the March 2015 quarter, according to official figures, and with most of our net worth geared into property, households are at risk.
According to the figures released by the Australian bureau of Statsitics, property assets account for $5.45 trillion of our overall net worth. Financial assets, such as shares, account for $4.13 trillion. Meanwhile, Australian households have $2.12 billion of household liabilities.
Specialising in risk tolerance and risk-related matters, FinaMetrica co-founder Paul Resnik and consulting actuary Peter Worcester, warn that the large allocation to property exposes households to higher interest rates and a sudden fall in values.
"Most Australians dive into property without thinking more deeply about other investment options. Without the benefit of good financial advice, many Australians are ignoring the investment opportunities offered by other assets, such as managed funds, offshore investments and alternative investments such as infrastructure which all enable investors to diversify their wealth and better insulate their assets against a financial or macroeconomic shock such as a sudden rise in interest rates, rising unemployment or an Australian recession,” Resnik said.
Household net worth rose by a total $232 billion over the quarter, with a $129 billion rise in financial assets, reflecting higher equity values, and an $80 billion rise in property assets.
The ABS notes the mortgage debt to residential land and dwellings ratio has declined since peaking at 30.6% in September quarter 2012, but has remained unchanged since December 2014 at 29.2%.
"While the ratio has stabilised, it remains high, and this highlights that for those households with mortgages, a large portion of their income goes towards debt servicing, which may become impossible to service if interest rates were to rise, which is exactly what they are likely to do in the US," said Worcester.
“Many Australians look to be in need of good investment advice. By better understanding how financial markets work, and the impact of asset allocation on portfolio behaviour, Australians can be better prepared for a financial shock when it happens.”


  • by Tracy 29/06/2015 12:00:24 PM

    Is is any wonder Australians rely on property for asset accumulation when again and again we see rorts, fraud, conflict of interest and self-interested advice from "financial advisers".

    As long as a financial adviser's income relies on placing the client into a product rather than giving him/her impartial advice, the instincts of Australians to invest in something they understand are not so stupid.

  • by Papery 30/06/2015 8:45:04 AM

    The only thing most Australians think they understand about ppty is that the value always goes up & someone else (a tenant or tax rebates or a future purchaser) will cover the repayment.

    Most punters don't associate any risk with ppty. Most FP are not authorised to advise on ppty, so their first word of advise is to sell & put the proceeds into a Financial Product that they can advise on & also charge a premium for the privilege. It goes without saying that many FP products are complex & carry there own set of risks & most punters have no idea what they are getting into. The media is full of stories about people losing their nest eggs.

    And there are as many spruikers 'advising' on property/finance & also taking advantage to secure a sale/commission.

    There's no one size fits all....buyer be ware.

  • by Yawn... 30/06/2015 4:26:04 PM

    Sounds like a unpaid advertisement....
    For the past 30 years, the same issue/opinion gets 'raised/public airtime' every three years.