The size and value of the residential real estate market, along with its prospects for growth, mean advisers should continue to view the asset class in a positive light for their SMSF clients, according to a property researcher.
The Australian residential property market is worth $5.2 trillion, almost three-and-a-half times the value of the Australian stock market, and almost 10 times the value of total SMSF assets, RP Data research director Tim Lawless said.
Over the past 12 months, residential property value aggregates across Australia’s eight capital cities had increased by 9.8 per cent, according to RP Data’s figures. The solid gains have led to speculation a bubble is developing in the market and investors could face capital losses.
But Lawless said that while price growth had accelerated since June last year, it was unlikely residential property faced a bust.
“[Market growth] has been pretty tame compared to other growth cycles. The trend line is moving at a slower pace than in the past,” he said.
Housing values have increased by just over 13 per cent since the bottom of the latest market cycle in mid-2012.
Starting in 2001, residential property prices gained 35.4 per cent over 21 months, RP Data’s research showed. From 2007, values rose 15.4 per cent over 15 months before a correction at the time of the financial crisis. The market gained 21.1 per cent in the first 21 months of 2009/10.
Sydney, Melbourne and Perth had been the main drivers of price growth in this cycle, Lawless said. The other capitals have gained less than 5 per cent over the past year.
However, some capital cities are starting to look more risky than others.
“Melbourne is a bit more worrying in my view because Melbourne over the last few growth cycles has outperformed other cities. Add to that the fact that Victoria has been adding dwelling stock and Melbourne potentially is starting to look like a riskier market than Sydney,” Lawless said.
Over the past decade, Melbourne property prices had risen 6 per cent, compared with 3 per cent capital growth in Sydney, according to RP Data. Lawless said Sydney’s growth rate was more sustainable in the long term. Average 10-year price growth for properties across the eight capital cities was 4.5 per cent, RP Data’s figures showed.