Australians advised to stop investing in overweight property market

Russel Chesler, Head of Investments and Capital Markets at VanEck, has advised Australians to refrain from buying property as investments, because of their risk of exposure to higher interest rates.

Australian household wealth data from the Australian Bureau of Statistics (ABS) revealed Australians have never been wealthier, but Chesler believes that the high expenses and lack of liquidity associated with property should direct people to invest in lower-risk and higher-return offerings like shares.

Net Australian household worth rose to a record high of $13.43 trillion in the second quarter of 2021, and wealth per capita also set a record high of $522,032. Property assets made up around two-thirds of that wealth with $8.94 trillion, with $3.56 trillion of superannuation, $1.34 trillion held in cash deposits, and $1.18 trillion held in shares.

Chesler said that the time for Australian households to address the burden of property assets is overdue, and to look to other alternatives for investment.

“Equities are more accessible than property and offer comparable, if not better, returns over the long term and are not as sensitive to interest rate rises,” he said.

“As economic activity picks up in 2022, we are likely to see higher interest rates in Australia, which could dent the value of property assets and increase mortgage burdens.”

Chesler also said that the recovery of Australian and global economies in the wake of COVID-19 could continue to have a positive effect on the share market.

“Many equities will remain resilient to higher interest rates and may even benefit, like the banks.

“In addition to potentially creating wealth, there are other factors which favour shares over property as more accessible investments.”

Commenting on the benefits of investing in shares, Chesler said that investors are not met with huge pressure to pay stamp duty or deposit amounts. They also have more options to choose from in the amounts and the funds they invest in.

“Many next-generation investors are gravitating towards exchange traded funds (ETFs), which spread financial risk across a diversified share portfolio versus investing in one or two companies,” he said.

“ETFs are cost effective and can be easily bought online for little or no cost, unlike the prohibitive costs of buying property.”