Stock market turmoil could see a flow of investment to property

Economists are predicting house prices to get a bump up from rattled stock market investors looking to invest in property after last week’s market turmoil.

After taking massive hits on ‘Bloody Monday’ the Australian share market ended the week ahead after rebounding strongly from the losses occurred off the back of China’s turbulent market. 

While hardened share market investors might shake last week off as part of the territory when it comes to share investing, it could drive plenty of nervous mum ad dad investors, self-managed super fund trustees and foreign investors to move their investments to property which they might consider a safer option. 

Economist Hans Kunnen from St George Bank told Domain what might be going through these investors’ heads right now. 

“As a knee-jerk reaction, investors are seeing the volatility of the financial markets, and asking themselves, ‘where else can I go that’s not as volatile?’” he said. 

“Property is an answer. They say, ‘I’m not having a bar of the sharemarket; I’ll stick with bricks and mortar.” 

Merrill Lynch chief economist Alex Joiner also told Domain that he thinks there would be some investors keen to switch property with its associated tangible asset characteristics. 

“A lot of the falls in the global markets have been for reasons that aren’t entirely clear to people,” he said. 

“The Chinese volatility, concerns about global growth, Fed rates rises – these are things not front of mind of for most people … they think property is safer bet because they have much more confidence in it.” 

Mr Joiner warned however that if and when interest rates do go back up again, it would force house prices down or slow their growth, which might leave them disappointed with their capital growth results. 

“They need to be aware property might not the big winner they think. It might not pay the returns people are used to,” he told Domain.

Mr Joiner said it wouldn’t surprise him to see foreign investors head for the relative safety of the Australian property market after the turmoil on the Chinese stock exchange last week, with the low Australian dollar providing more incentive for them to do so. 

Domain senior economist Andrew Wilson said although the country might see an increase in the flow of investments to the local property market, it was more complex than investors simply switching from shares to property. 

“Given the sharemarket and the property market were different classes of investment – and property investors were still exposed to the sharemarket via their superannuation – it would be short-sighted to assume investors would simply choose one investment or the other,” he said. 

AMP chief economist Dave Oliver however, said unlike 1987, when spooked investors fled the stock market after its crash to shelter in the property market, the current real estate market conditions meant it was less likely this time around.

“Back then, it was hard to say that property was in a bubble, but now property, particularly in Sydney and Melbourne, is definitely bubbly,” he told Domain.

“It’s a time when investors need to be cautious. If they are thinking the last two years [in property] have been strong, so the next two years will be strong, they would be making a big mistake.”


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