What assets we own - Part 1 Australian property

This is part 1 of 4 parts series about what assets we own

I have written quite a bit about most of our journey towards FIRE and today I would like to summarize our investments, how we got them and what they generate. And how this passive investment income currently supports family of 4 living work free for now. Actually it is already 2 and 3 months since I have been in paid job and even more for my wife. She was for a while on maternity leave looking after our baby twin boys. So this assets have done quite a good job so far.

Real Estate

Here in Australia everything is about property. Everyone wants to live in own house, have some investment property and retire on investment income (even in traditional retirement age of 65-67). Bad thing is that that made Australian residential property insanely expensive (one of the most expensive in the world by many measures). Good thing is that this means there is always demand for it. And if you top it up by government preferential treatment of property investment, you realise it makes MOSTLY sensible, stable, growing and sometimes good income producing asset.

Yes I realise that once you are at the top with pricing, the only way is down. Similar thing happened in Japanese property market in 1990s. This time is different. Sorry I could not help it. What makes me still believe in Australian property should not collapse? Drivers and potential drivers of this growth.

Government policies impact on real estate

Foreigners still can buy here. Tax preferential treatment of capital gains. Capital gains tax exemption on primary residence. Property loans are now generally allowed (with various conditions) in self managed super funds. Preferential treatment of primary residence when applying for government pension. Negative gearing when most of the investment property losses can decrease tax payable on your standard salary. Land tax exemptions on primary residence. Government rule allowing large immigration (close to 200,000 new permanent migrants annually for country of 25million). These immigrants put extra pressure on property market either as buyers increasing demand, or tenants increasing property rents which increases property demand as investment (and yes I am one of these immigrants). Permanent residency offered to many graduates from Australian higher education system.

Is government going to make any radical changes to the benefits above? NO as far as I know. Should they if it would be good for the nation? Definitely. But now too many people who are making decisions for us (or can influence decision making process) have fingers in the property pie so I expect lots of noise if the pie would be taken away. Also there are many voters (usually older ones mostly born in seventies and older) owning the properties, or they offspring expecting to own properties one day, who are significant voting class which cannot be easily ignored as Labour learnt in 2019 elections.

Local demand for real estate

Australian love for property lasts at least since World War 2. Own house on quarter of acre (or 1000sqm) is everyone’s dream. Now in Australian capital cities it is more like 50-70sqm unit in the blocks with hundreds of flats. Still any houses and flats are in high demand. Australian have now just about highest debt per capita most of it is spent on property. Still that’s not enough and I can see further huge demand.

Overseas demand for real estate

Australia is extremely attractive destination for tourists but also to live. Relatively nearby Australia there are these huge countries as China (1.4 billion people), India (1.35 billion), Indonesia (270 million) or Philippines (100 million) where Australian residency is extremely popular and large amount of their population would be ready to relocate if they had the opportunity. Please realise there is only 25 million citizens in the country. There are similarly sized CITIES in China and India. Current Australian immigration system favours high migration which clearly puts pressure on property market.

Also it is possible for overseas residents to buy property in Australia (once they jump few administrative hurdles). So you can imagine what will happen if nothing will change and Australian destination stays same popular and as these relatively poor countries get richer and more interested in overseas property markets. 1 million of extremely rich foreigners can be less than 0.1% of their population but would have huge impact on local property market. I am just making up possible scenarios here buy you can make a picture.

These are major drivers of the property market here in Australia in my view. So even I know the changes should be made, I am not going to bet that way as I know change is always difficult and when you can add significant opposing crowd, I expect any changes to be very slow if at all. Which should benefit property investment.

Continues in Part 2

What assets we own – Part 1 Australian property

What assets we own – Part 2 Our properties

What assets we own – Part 3 Our ETFs

What assets we own – Part 4 Our pension funds (Superfunds) investment