Australian superannuation funds to reduce property exposure
At this moment in time there is no doubt that the Australian property market is one of the strongest in the world, with Sydney reporting a 1.3% increase in property prices for the month of October. The likelihood is that Australia’s largest cities will continue to grab the attention of international and domestic property investors and many experts believe that prices will move higher in the short to medium term. However, the long-term picture for the Australian property market could well be influenced by a steadier worldwide economy which could have significant knock-on effects.
Geoff Lloyd, the chief executive of Perpetual, has been very vocal over the last few days with regards to Australian self managed superannuation savers who have been large players in the investment arena for some time now. So what did Geoff Lloyd have to say?
Property investments
It is no surprise to learn that the 2008 worldwide recession, with many countries still feeling the after-effects, had a major impact upon worldwide stock markets and equity investments. Initially there were hopes that the worldwide economy would avoid a major downturn although these hopes were dashed as the euro went from bad to worse, the US economy stalled and investor confidence in stock markets evaporated.
Quote from PropertyForum.com : “House prices in capital cities in Australia increased by 2.4% in the second quarter of 2013, taking the annual growth to 5.1% and values to a new all time high.”
As worldwide base rates were reduced to try and encourage worldwide economic activity we have seen an increase in property investment activity around the world. Many experts believe that the volatility associated with stock markets and equity investments has played into the hands of the property market although this will not last forever.
Equity investments
Geoff Lloyd expects Australian self managed superannuation savers to encourage a long-term reduction in their property investments in favour of international equities. This switch from Australian property, with some overseas property also included, will be gradual and will see an ongoing increase in equities once worldwide stock markets find a level and the volatility is reduced.
In many ways the Australian property market, and indeed many property hotspots around the world, has become something of a safe haven in the aftermath of the 2008 mortgage crisis. That is not to say there is not good long-term value in property but a reluctance to invest in international equities due to their extreme volatility has helped to encourage investment in the worldwide property market. It makes sense for a rebalancing act to commence over the next 20 years or so although like we saw with the 2008 downturn, and subsequent worldwide recession, you never know what’s around the corner.
Balancing your investments
The key to long-term investment success is to balance the make-up of your investments and try to block out the short-term picture in favour of the longer term. There are situations where you may have to take into account potential short-term fluctuations, such as the time when you need to cash in your investments to live in later years, and professional financial advice should be sought for these situations.
As the worldwide economy begins to consolidate there will in due course be a natural rebalancing of the worldwide investment arena. This consolidation of investments will see some outflows from the property arena when confidence returns to worldwide stock markets. The trick is cashing in your property investments before the trickle of sellers becomes a flood and has the potential to encourage a short-term correction in asset prices. This is something which we saw in the Dubai property market just prior to the crash.