Property and shares go head to head

Posted on September 26, 2013 by | 0 Comments
Treat income with as much reverence as you would potential capital gains.

Treat income with as much reverence as you would potential capital gains.

It has to be one for the books when a real estate agent is saying property prices are becoming unsustainable and a Reserve Bank heavy says they’re not.

Yet I heard both the same day. And no, I didn’t mix the quotes up, though context can be an elusive thing.

The agent was commenting on research suggesting Sydney values could jump by up to 20 per cent next year, while the Reserve’s assistant governor was asked at conference whether he saw the risk of a price bubble in property. The answer was no, but ”this is an area to watch”.

Either way, there’s no disputing property prices are rising. So are other asset values, too, and by a lot more in the case of the sharemarket.


The quandary for investors is that the starting point for property is so high despite the modest falls of the past couple of years. The sharemarket on the other hand started off from a low base a year ago but has whizzed up to the point where it’s also expensive when you consider the fair-to-middling outlook for profits.

The reality is neither can be counted on to shoot the lights out any time soon.

The Economist even suggests houses are either 24 per cent or 46 per cent overvalued compared with incomes or rental returns, respectively. I don’t buy that because the benchmark it uses is a historic average and things change, especially population growth in our case. Besides, the Reserve Bank recently had a crack at seeing whether property was over valued and gave up.

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