Investing in homes: Safe as Houses?

The expression as “as safe as houses” is said to date back 150 years. According to John Hotten's ‘A Slang Dictionary; or, The Vulgar Words, Street Phrases and Fast Expressions of High and Low Society’ first published in 1865, the saying was first recorded around 1859.

An explanation of its origin suggests the meaning may have arisen from advice that stated when the railway investment bubbles began to burst, “speculation again favoured houses”.

Clichéd as it may be, there’s a fair degree of truth to the epiphet – especially Down Under.

Contrary to suggestions that Australian property prices would collapse in the face of the global credit squeeze, generally property prices have continued to grow across the nation. In the 12 months to December 2009, the Australian Bureau of Statistics recorded average nationwide house price growth of 13.6 per cent. Though Adelaide was less than half the national weighted average (at 5.1 per cent), Melbourne’s annual growth was 19.7 per cent and Sydney’s 13.6.

According to the Victorian state Valuer-General, top performers in Victoria included Ouyen in the  Wimmera-Mallee region and St Kilda – both of which showed median house price growth of  more than 50 per cent in the 12 months to last September. In the same report the V-G suggested

home owners in Armadale saw their average prices increase by about $510,000 in one year!

It’s little wonder most investment advisors suggest at least some form of property should be included in any balanced portfolio. It’s hard to argue with results real estate delivers both long and medium term.

For most of us, property investment takes one of two forms: building equity in our own home, and for those with means to afford it, an investment property, either residential or commercial.

In the case of purchasing your own home, typically the benefits are peace of mind (you’re the landlord) and a place to live, and in the medium and longer term, the promise of tax-free capital growth. Exact growth rates depend on many things – not least of all where you buy your home and the initial purchase price.

While investment properties can generate capital growth, unlike your own home you will be taxed on that growth when you sell the property. Offsetting this is the fact an investment property generates income (in the form of rent) and your ability to offset this income against the costs of purchasing and retaining the property.

Both strategies offer benefits and pitfalls. These will differ depending on myriad factors, thus before you dive into either it pays to get solid independent advice from someone you trust.