Your Family Home as the Cornerstone of Wealth: New Statistics
20th OF May 2012
I’ve always advocated your own home as being the cornerstone asset for your future wealth. There’s a number of reasons for this but one of the most important is that you won’t pay tax on gains in the value of your property, as it’s exempt from capital gains tax. This means your own home is one of the most effective – if not the most effective, ways to accumulate wealth.
by John McGrath
And here are the stats to prove it. Recently-released data from the Bureau of Statistics shows the rising value of people’s homes, or their net equity in their homes, represents the largest proportion of their household wealth at 41%. Next in line is superannuation, then other property holdings such as residential investments.
Average household net worth in 2009-10 was 14% higher than in 2005-06 and 30% higher than in 2003-04.
Here’s something else that’s really interesting. When we look at our increased household wealth over six years, the family home accounts for a third of that increased wealth in both metropolitan AND regional areas. This is really encouraging especially for young buyers in coastal or country communities, where property is far more affordable yet its importance for growing wealth creation is just as high as it is for city dwellers in more expensive markets.
Given the volatility of our sharemarket, it’s not surprising to see more investors interested in property at the moment. According to AFG, Australia’s largest mortgage broker, recent statistics show an average of 36% of all new loans went to investors each month in 2011. Among these investors are many people using their super to buy property rather than shares or managed funds.
The percentage of households owning investment properties increased from 19% to 21% over the six years to 2009-10, says the ABS. Investment properties accounted for 31% of these households’ net wealth. Looking at it simply, if you take away home ownership and other property holdings, the stats say your most valuable asset is super, and as we all know, super is probably not going to be enough to fund our retirement. If you can afford to get involved in property at a young age, I would really encourage it.
Over the long term, it is a very safe and stable asset class that will become your most valuable financial investment for the future. Yes, it is also the most expensive asset class and does make up the highest proportion of household debt. But we get a lot of help with the capital gains exemption on family homes and negative gearing on investments. Not to mention the availability of finance and the First Home Owners Grant for younger buyers.
People often ask me when to buy, so if you’re intending to buy and hold long term, today’s market is offering exceptional opportunities. I hope to see more buyers taking advantage of this once the auction season gets underway in mid-February.
There is a lot of good buying available now, and with interest rates on the way down and very attractive fixed loans available right now, it’s a great time to be looking for your first – or next, piece of Australian real estate.
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