Returns from Australia’s top three major asset classes, which includes shares, government bonds and residential property, are projected to be at their lowest levels in 25 years, according to analysis by RiskWise Property Research.
The study said that 2018 would be a “perfect storm” due a to a combination of volatility in financial markets, ultra-low interest rates and a moderate projected growth in dwellings after lending restrictions cooled the major markets.
Also, uncertainty around the Banking Royal Commission was expected to further impact house prices.
RiskWise chief executive Doron Peleg said 2018 might be the worst and poorest year for returns and it would represent “unchartered territory” for investors.
He said that across these asset classes investors could typically expect to see returns in the range of five per cent, at least.
“However, in 2018, under a realistic (and optimistic) scenario investors should achieve only 3.4 per cent growth for houses or ASX 200 shares, with bonds coming in at just below the two per cent mark,” he said.
“What you expect in an ultra-low interest rate environment is continued growth in dwelling prices, however, the lending restrictions have cooled the market and created an unusual situation of low house prices.”
Previously the lowest returns were in 2015, with only 4.75 per cent and this was because the market saw a very low interest rate environment and volatility in the financial markets that had led to negative returns of ASX 200 shares, which meant that the only asset class that had delivered solid returns was houses (at 4.76 per cent).
According to Peleg, more volatility should be expected in financial markets for 2018-19 as well as uncertainty around international major global events such as the US trade war with China, low interest rates and low growth.
“Therefore, it seems investors looking for long-term returns to minimise risks should take a risk-based approach to property,” Preleg added.
“The 2018 property market greatly varied across the entire country and some areas do present investment opportunities and carry low risk.”
