It’s no secret that Australia’s young people have been severely disadvantaged by the country’s real estate boom. Rising house prices in many cities and regions means that only the wealthy—or those who’re assisted by wealthy parents or benefactors—can afford to climb the property ladder.
Negative gearing, which helps investors achieve great returns via lucrative tax breaks, isn’t helping the situation. Last week, Rob Stokes, the New South Wales planning minister, blamed negative gearing for the nation’s sky high property prices. He also warned that the current building boom would have very little impact on prices.
“Why should you get a tax deduction on the ownership of a multi-million dollar holiday home that does nothing to improve supply where it’s needed?” Stokes said in his speech.
While real estate may be difficult to attain for many young people, Cameron Kusher, head of research at CoreLogic, said it was time young people considered investing in asset classes other than real estate.
“Young people, I suspect, don’t even think about trying to buy a home in Sydney as it’s too expensive,” Kusher said. “The challenge is what else to invest in.”
Listed here are some alternative investments young people should consider:
Getting a mortgage is just one way to invest in property, notes Craig Keary, AMP capital director for Australia and New Zealand.
“If you’re a young person without the capital to buy property, but you want to invest in something tangible, then you can always invest in a property fund that invests in commercial property, or shopping centres, and it gives you property exposure for as little as a $2000 entry,” Keary said.
“You can receive a distribution of roughly 7 to 9 per cent on your investment annually, depending on the fund, of course.”
Keary also recommends infrastructure funds. “Considering the global investment in toll roads and infrastructure, it may also make sense to look into funds investing in toll roads or airports, and, once again, you don’t need a lot of money to get started,” he said.
Corporate bonds and shares
Shares may be a risky investment, but when you’re in your 20s and 30s, you can afford to take such risks.
Gavin Fernando, director of Property Advisers, said shares suited investors with a decent amount saved in the bank—between $5,000 and $10,000. Corporate bonds are another great investment option. While the returns are generally less on corporate bonds, they can be less risky than equities (shares).
Fractional ownership of property
Companies that offer fractional ownership of property are also very popular. One such company—BRICKX—buys properties and divides them into “bricks” that people can buy for as little as $100. These bricks are essentially shares or stakes in the property.
“People like this concept because they are buying something tangible,” said independent financial commentator Heidi Armstrong. “There are now lots of creative ways for people to invest in property.”
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