It’s been an interesting period recently, with plenty of ‘doomsday’ predictions. The thing with these is that ‘if the end of the world’ does occur these doomsayers are heralded as prophets, but as these events don’t occur, then the article or media piece is forgotten completely.
The challenge with this ebbing and flowing in the media is that its often directly impacting the confidence in our investment markets…. which you would be acutely aware of if you have exposure to the share market. For those in property, not so much..
Luckily we focus and participate on the property side of the ledger, as property is often referred to as a ‘defensive ‘ asset, a place for shareholders in share market to shelter, when the market is so unstable, no one knows which side is up. This doesn’t mean we don’t advocate building a sustainable managed share portfolio but when providing bespoke strategic property solutions continues to deliver returns above any other fund we don’t feel the need to look too far externally at this point.
Property though, which meets the usual brief of location, infrastructure, majority market product doesn’t experience these highs and lows. Majority market means the everyday product, not premium dwellings, but premium locations. Land based assets, not attached. This segment trends towards linear growth, stable valuations and can be worked purposefully to achieve valued add and/or increases in yield.
Before diving in, there are a few things happening on a global scale we need a perspective on, and when we compare the pros & cons of those influences, you might be surprised where the opportunities lie.
The first thing making the news right now is the Greece Crisis, which is in Greece. Really its a sentiment thing, where the associated risk of other world markets responding poorly to this unknown, which then spirals on the other side of the world – where we live.
RBA chief says; ‘Australia’s direct exposure to Greece was “miniscule” and its crisis was unlikely to have a material impact on the country unless there’s major upheaval in global markets, he said. Which didn’t stop the jitters last Thursday by the market’s biggest one day drop in nine months which saw more than $35 billion wiped off its value. The market has since recovered but the ongoing volatility of the asset class and its hyper-sensitivity to global events highlights to investors the importance of balancing a portfolio with more stable asset classes.’
I think he’s talking about property…Shares are more liquid making it easier to access your cash if you need it. They can deliver more capital growth over shorter timeframes – but investors need to be aware that gains can be lost just as quickly.
Property on the other hand is less liquid but will typically deliver more stable growth. And as the sole owner, rather than part owner, as is the case with shares, you have complete control over the management of your asset giving you the power to improve it and increase its value.
Investing in the share market without the expertise of a financial advisor can also be challenging – many investors simply find property easier to understand.
Regardless of your personal preference and appetites for risk, what is key is a well researched strategy, a diversified portfolio to reduce risk and a long term view to ride out any booms and busts. Realtors in Australia, Britain and Canada are bracing for a surge of new interest in their already hot property markets, with early signs that wealthy Chinese investors are seeking a safe haven from the turmoil in Shanghai’s equity markets.
Agents across Syd, Melb and now Brisbane are seeing continued interest in properties from Chinese investors looking to park their money into solid bricks and mortar. A lot of high net worth individuals had already taken money out of the stock market because it was getting just too hot,” said Pallier, the principal of Sydney Sotheby’s International Realty. “There’s a huge amount of cash sitting in China and I think you’ll find a lot of that comes to the Australian property market.”
Around 20 percent has been knocked off the value of Chinese shares since mid-June, although attempts by authorities to stem the bleeding are having some effect.
Many wealthy Chinese investors had already cashed out. Major shareholders sold 360 billion yuan ($58 billion) in the first five months of 2015 alone, compared to 190 billion yuan in all of 2014 and an average of 100 billion yuan in prior years, according to Bank of America Merrill Lynch.
While much of that money may initially be parked in more liquid assets like U.S. Treasury bonds and safe-haven currencies such as the Swiss franc, there is growing evidence that foreign property sales may receive a boost.
“There is anecdotal evidence that Chinese buyers have intensified their interest in ‘safe haven’ global property markets, including London, as a result of the recent stock market volatility,” said Tom Bill, head of London residential research at Knight Frank.
Since 2000, China has had the world’s largest outflow of high net worth individuals. Around 91,000 wealthy Chinese sought second citizenship between 2000 and 2014, according to a report by residence investment broker Lio Global, a factor that is fuelling demand to buy foreign property. Most of these individuals, defined as those with net assets of $1 million or more excluding their primary residences, are moving to the U.S., Hong Kong, Singapore, Britain, Canada and Australia.
Brian Ward, president of capital markets and investment services for the Americas at commercial property company Colliers International, said Chinese investors had already sunk around $5 billion into U.S. real estate in the first six months of 2015, more than the $4 billion they invested in the whole of 2014.
The rush by Chinese investors into foreign property has not been without criticism, with some in London, Sydney and Vancouver blaming them for pushing up already spiraling prices.
The Australian government has moved to look tough on the issue, introducing new fees and jail terms for those found flouting foreign investment rules. The Chinese owner of a A$39 million Sydney mansion was forced to sell up earlier this year after it was revealed the property had been bought illegally through a string of shell companies.
Others are concerned that Chinese investors who didn’t bail out of stocks quickly enough will be a drag on international property markets, particularly after Beijing on Thursday banned shareholders with large stakes in listed firms from selling for six months.