Essentially, the Aussie property system isn’t working for anyone, new research suggests.
“Renters face fierce competition for leases, and poor tenure security when they do find one,” the PEXA and Longview research paper on private renting said.
“Meanwhile, up to two-thirds of landlords get poorer financial returns than if they had invested in super, alongside property-management headaches and unexpected maintenance costs.”
The research found most landlords only held one or two investment properties, and those landlords only held onto these investments for around five years - adding to the constant movement and distress in the rental market.
“The current model of individual property investment is much more involved and complex than many expect,” the report said.
“Contrary to popular opinion, property is a highly variable form of investment, particularly when funded with mortgages. Despite this additional effort and risk, the overall median post-tax return on rental properties is often poorer than alternative, lower-effort investments.”
Invest in your super, not property
The research said compared to other investments, property investment requires very active involvement.
“Many investors have misconceptions about the effort required when they enter the market. Many landlords would be better off investing in superannuation than property,” it said.
The research compared the actual returns received by property investors based on real property-price-growth data from 1990 to 2020, assuming the property investor held onto the property for between four and 10 years.
“While some investors have done very well financially, others have had poor returns. In contrast, balanced funds held within superannuation have historically delivered a 7.4 per cent post-tax return over the long term, more than 1 per cent higher than property,” the report said.
Not only this, but the diversification of superannuation across many assets and asset classes has made it much less risky than investing in one or two properties in terms of return variability.”
The research found that up to 60 per cent of landlords would have been better off financially by putting their money into balanced superannuation funds.