Residential Property – Beyond the rear view mirror

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Perpetual Private Insights

“Buy land, they’re not making it anymore.” Mark Twain

What would a financial adviser say if you walked into their office with plans to invest in residential property?

Tom Threlfall, an investment specialist from Perpetual, shares his views in this video interview.

Eliminate emotion

People feel more comfortable with residential property than many other asset classes. It is a tangible asset that people live in and are familiar with. And residential property has been a strong performer – particularly on Australia’s eastern seaboard. Who wants to miss out?

There’s investment risk in this sort of thinking:

  • Overestimating your understanding of an asset class
  • Assuming past performance will continue
  • Investing for fear of missing out

Tom’s point isn’t that the Australian residential market should be avoided – rather that a decision to invest should be free from emotion.

“It’s tangible, it’s solid, it’s beautiful. It’s artistic, from my standpoint, and I just love it.” Donald Trump

Take a portfolio view

Tom’s advice is to think of residential property in the context of your broader investment portfolio. Like any asset class, being too concentrated in property may bring a level of risk that significantly outweighs the return.

Ask yourself – what purpose will an investment in residential property play in your portfolio? Is it to diversify, secure ongoing income or purely for asset growth?

Despite the current perception that residential property is a high growth asset class, Tom’s longer term assumptions are Consumer Price Index plus one or two percent. It’s tempting to look in the rear-view mirror as the basis for future asset growth – but it’s risky.

Open to alternatives

What are the alternatives to residential property? Tom cites infrastructure as an asset class worth considering – particularly in light of the infrastructure spending signalled in the Turnbull government’s recent budget. On the positive side, investment earnings may be supported by government and there’s a framework for understanding how returns will work with assets like toll roads. But there’s also risk - interest rate rises will impact the infrastructure market as they would property. 

The key is to objectively assess alternatives like infrastructure – not in isolation but as part of your structured portfolio. Focus on the balance between risk and return and be clear on the reason for the asset class to be in your portfolio.

Want to discuss your investment options?

Our financial advisers and investment specialists are here to help you put in the place an investment strategy that aligns with your life goals.

Perpetual Private advice and services are provided by Perpetual Trustee Company Limited (PTCo) ABN 42 000 001 007, AFSL 236643. 

This information has been prepared by PTCo. It contains general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial or other adviser, whether the information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.