Property or Shares

This is a debate which has been raging for many years. My question is, why can’t it be an ‘AND’ conversation?

They have different characteristics such as level of income paid (some shares don’t pay any income), tenants, franked dividends, depreciation, increased ability to borrow with property etc etc.

One key thing to be aware of is that they tend to ‘boom’ at different times in the economic cycle http://genxadvisers.com.au/economic-time-clock/

So why not have both in your investment or retirement portfolio?

There is also many types of shares and property: residential, commercial, industrial, resources, industrials, small caps etc.

Today I wanted to focus on some recent results being released on residential property.

Australian house prices rose by 4.2 percent in the last quarter but some economists are saying booming values will ease soon.

The Australian house price index rose 4.2% in the September quarter, the Australian Bureau of Statistics said today, compared with an unrevised 4.2 % in the June quarter. As a result, house prices are now 2.6 % above their previous highs, achieved in 2008, according to Westpac economists.

Around the world, $US11 trillion has been stripped from the value of housing during the crisis, according to Goldman Sachs.

The median market forecast was for the house price index to have risen 3.4 % in the September quarter and to have risen 4.8 % in the year to June 30.

However, some economists believe the gains seen this year could be short-lived.

‘Australian house prices have rebounded strongly this year, buoyed by low interest rates, tightening fundamentals, the first home buyer boost and vastly improved market sentiment,’ said Paul Braddick, Head of Property and Financial Systems Analysis ay ANZ.

Paul continued by saying, ‘A shortage of supply (for sale) has boosted prices, but with confidence steadily returning to the market, supply is expected to recover. Along with the removal of the (Commonwealth) first home buyer boost, rising interest rates and deteriorating housing affordability, this should see house prices decelerate into 2010.’

The ABS data is the latest to show a tentative boom in house prices this year. Last week, Australian Property Monitors data showed that house prices rose by 3.7 % in the three months to September alone and have already gained by 7.1% this year.

APM economist Matthew Bell said the gains had been powered by a recovery in sales at the luxury end of the market and by owners who sold property to the rush of new first home buyers, who are now upgrading. Newcastle’s southern neighbour, Sydney, is now 2% above pre-global financial crisis levels, with some of Sydney’s elite suburbs having had big median price rises in the September quarter.

Matthew notes that ‘moderate to strong growth is expected across the market as a whole for the remainder of 2009 and 2010. The question as to whether this growth can be sustained throughtout 2010 depends on how quickly mortgage rates rise in the next six months’.

But the majority of the strength is ’simply recovering the heavy falls seen in late 2008′, he added.

Meanwhile, a seperate report from QBE Mortgage Insurance found that low interest rates and a shortage of affordable housing, coupled with growth in rental rates, will continue to drive up house prices by 23 % in the next three years.

Some key indicators are starting to turn against a continued surge.

The most important of these indicators being affordability as house prices and mortgage rates rise, and income does not rise to match, affordability will decline.

Housing finance is also reflecting the turn with finance for owner-occupied housing falling.

Lastly auction clearance rates are also slowing according to recent RP Data numbers.

Director of PRD Newcastle and Lake Macquarie http://www.prdnewcastle.com.au/index.php?section=about_us&sub=staff, Mark Kentwell confirmed the nationwide trend by saying  ‘demand for inner city suburbs or Adamstown in, has been strong showing a capital growth in the vicinity of 5% over the past 6 months.’

He noted, ‘Family homes have been where the real interest is lately with people “trading up” as they sell their previous home to first home owners and take advantage of the low interest rates’ and “they are attracted to the fabulous lifestyle Newcastle has to offer”.

He also confirmed one of my long held beliefs as an advisor that when the property market begins to move it starts at the ocean and/or city and then works its way out like a ripple on a pond.

The same happens when property prices start to tighten they ripple from the city/ocean addresses to the outer lying suburbs.

Following the fundamentals of the Economic Clock it appears that the next property “Boom” is still a few years away yet. And, despite their recent leveling, shares will perform strongly over the next few years. This is not meant to be advice to go out and buy shares, but by all means call GEN X advisers to make an appointment to see what is right for your circumstances.

Parts of the content of this article has been sourced from AAP, Stuart Fagg of ninemsn Money http://money.ninemsn.com.au/ and AFR 29^th October 2009