How much do you think the property you live in is worth? How about the suburb or area in which you live – what do you think would be the combined value of all those properties? Ever wondered what all the property on earth is worth?

Global Property Value

As usual in an information filled world, someone has taken the time to try to work this figure out. And the figure? According to research provided by Wealth-X for the real estate group Savills, the global real estate market is valued at US$200 trillion. Let’s see what that looks like when written out in full… $200,000,000,000,000.00.

The research suggests that 72% of this value is held by owner-occupiers. This leaves around US$70 trillion that is traded or “investible” property, of which US$20 trillion is commercial property.

Australia’s Property Value

The figure for Australia comes in at $4.29 trillion (some figures have it at $4.8tr).

Rural land was estimated to have a total worth of $264.6 billion according to Colliers International 2012 Rural and Agribusiness Research Report.

This makes the property market roughly 3 times the value of the Australian sharemarket. Property holds an almost mythical place in mainstream investment thinking, and the concentration of wealth in property assets here in Australia compared to the figures for other developed countries highlights just how strong that position is.

There have been some very good discussions generated by reports on Australia’s property values – including the one you can find here on macrobusiness.com.au.

Residential Property

It is no secret that property – especially residential property – holds an almost mythical place in the minds of most Australians. Just some of the reasons behind that status are extremely good long-term returns for capital growth, inflation-linked rental income and a very willing banking industry that is prepared to lend very generously for residential property. The mainstream thinking on property is well suited to the asset class itself.

For example, property is nearly always considered a “long term” investment. However, unlike most forms of sharemarket investment, in this case most people really DO think long term – 7 years plus, and for a lot of people long term means forever. In other words, traditional thinking on property is ideally tailored for the vagaries of the property market itself. It costs a great deal of money to buy or sell properties – whether or not you have made any money on your investment, so the longer you hold the house the better you can spread those buy and sell costs over your timeframe, thereby increasing the chances of making a good return even after costs. 

Recent Trends in Property Values

The Australian Financial Review today ran an article titled “Value of houses exceeds $5tr” (AFR 12 February 2014, p3). An increase in valuation of $184billion in the last quarter to December 2013 led to this new measure. At th same time, the number of residential dwellings increased by 37,300 so there is some hope that the supply/demand tussle can be kept under control.

However, new home buyers made up only 12.7% of buyer commitments during this period, lower than the 20 year average. There are many reasons for this but the most obvious would be a slightly wary labour market, a “hangover” from rushed purchases to take advantage of earlier first-home-buyer government grants, and the alarming cost of making that first home purchase.

Many global investors believe that Australia’s house prices are too high. However, if inflation returns to haunt us then there is a high chance that property will participate in any increase or at least have a better chance of holding its value – along with other growth assets such as quality companies and businesses with strong balance sheets, marketable products and cost flexibility. The residiential property in Australia is valued differently by home owners, first home owners, local, interstate and overseas buyers as well as sellers. It’s a complex market, and calls that it is overpriced or underpriced are generally just guesses. It will be fascinating to see where property prices go from here but regardless of the direction, property will remain a significant component of the wealth of Australians. 

NOTE: Please remember the Great Disclaimer – nothing in this article or on this site is to be considered personal financial advice. In fact, you can even suggets that it doesn’t make up general advice, as it’s just my thoughts and observations and ideas being shared in a very simplistic manner – so please heed the warning and make sure that you do not take any action with regards to investment or strategies based on the content of this article or this site. Always seek professional advice. If you do not then please make sure you do an awful lot of research on alternatives and options that could be suitable to you before making any investment decisions. It’s a wobbly world out there, and a lot of mainstream content is really just data parading as information or forecasts being held up as having certainty. If i feel the need to take a lot of care before making any investment decision then it’s probably a good indicator that you should too!

As usual, any feedback, comment or criticism is cheerfully welcomed.

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Links:

South Australia’s government property measures for land and land + improvements

Wealth-X website based on ultra-high-net-worth individuals