Transform $100k into $1.5m

If you bought a home over the past 24 years, you have participated in the best-performing investment available anywhere in Australia.

That’s the verdict from a recent study by ANZ Bank, which found that residential property was the highest-returning asset over the past 24 years. Owner-occupied homes beat shares, commercial property, equities, government bonds and term deposits to generate the highest annual returns, even after factoring in costs and taxes.

According to the study, an investment of $100,000 into an owner-occupied house in 1987 would be worth $1,428,000 today – generating the highest average annual return of any investment, at 12 percent. Investor property was the second best-performing asset with an average annual return of 9.6 percent and equities came in third with 8.9 percent.

A number of factors contributed to owner-occupied housing’s number one ranking, the study claimed, “the most significant being exemption from capital gains tax”. For example, the same investment of $100,000 into an investment property in 1987 would return $810,000 today.

However, before you pool all your money into property, consider this: the study also predicts that over the next 10 years, equities will emerge as the strongest investment with forecasted 8 percent average annual returns. Commercial property will come in second with 5.8 percent returns, and owner-occupied housing is expected to finish third with forecasted 5.3 percent annual returns. So property will continue to be a sound investment, but don’t expect the same returns of the past 20-plus years.

But how much will your home investment be worth in 10, 20 years? It depends on where you live.

In the short term, the mining-boom town of Perth seems poised to experience the highest growth. Another recent report by BIS Shrapnel forecasts the Perth median house price to lift by 20 percent in the next three years, with Sydney expected to follow closely with a 19 percent rise in the median price. This compares with 16 percent in Brisbane, 8 percent in Canberra and 6 percent in Melbourne.

Pamela Bennett, president of the Real Estate Institute of Australia, said bricks and mortar remain a solid long-term investment despite a recent drop in prices in parts of Australia.

“We’ve certainly seen a correction in prices, but I am confident we’ve seen the bottom of it and prices are improving,” she said.

“The housing market in Australia remains undersupplied and market forces determine how quickly prices increase.

“The data shows that median property prices across Australia have generally doubled every 10 years. You could conservatively say that in the next 10 to 15 years, prices will double,” Bennett added.

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