Luxury vs affordable softcopy by Future Estate

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LUXURY VS AFFORDABLE

Intelligent Property Investment

FUTURE ESTATE EBOOK SERIES: LUXURY VS AFFORDABLE

OVERVIEW As a property investor, would you invest in a luxury property or an affordable property? Learn all the pros and cons of luxury and affordable properties in this eBook. Luxury The emotional appeal of investing in luxury properties is embedded in the social status of the highly sought after location and lifestyle offered to the occupier. However, luxury properties have historically generated lower investment returns due to lower capital growth and rental yields.

Affordable By definition, affordable properties are properties priced at near or below the median price of a particular suburb, town, city or region. Compared with luxury properties, affordable properties arguably offer less emotional desirability to the investors. However, they often provide more stable investment returns and higher capital growth.

Read on to find out more.

FUTURE ESTATE EBOOK SERIES: LUXURY VS AFFORDABLE

FACTS AND FIGURES Australian Home Sale Values July 2011 to July 2012 50%

90% of buyers purchase properties worth less than $800k

41.2%

40%

30.4% 30% only 5.3% of buyers purchase homes worth more than $1m

20%

10%

11.1%

9.8%

4.8%

4.4%

0 <$200,000

$200,000 - $400,000

$400,000 - $600,000

$600,000 - $800,000 $800,000 - $1,000,000 $1,000,000 - $2,000,000

0.9% >$2,000,000

Source: RP DATA, RISMARK INTERNATIONAL

Over 70% of Australian home sales over the last 12 months were valued between $200,000 and $600,000. As of July 2012, the median dwelling prices are ■■

$412,500 for Australia,

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$460,000 for Australian capital cities, and

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$535,000 for Sydney region.

From July 2011 to July 2012, ■■

79% of buyers purchased homes worth less than $600,000;

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90% of buyers purchased homes worth less than $800,000;

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5.3% of buyers purchase homes worth more than $1,000,000.

The above statistics demonstrate the greater liquidity offered by affordable property and the larger potential pool of buyers. Thus, there is a greater chance of growth due to a higher demand.

FUTURE ESTATE EBOOK SERIES: LUXURY VS AFFORDABLE

LUXURY VS AFFORDABLE Luxury

Affordable

Greater emotional appeal

Lower emotional appeal

Often a “prime” location

Potentially less “prime” location

Often Lower investment Return

Often Higher Investment Return

High Return Volatility

Lower Return Volatility

Capital Return Comparison: Luxury Vs. Aﬀordable 2000 - 2012 10%

9.8% 7.3%

6.3%

5.9%

Bottom Quartile (aﬀordable)

Second Quartile

Third Quartile

Source: RP DATA. Based on Australian property market for houses and units.

Top Quartile (most expensive) Annual Capital Returns

Empirical evidence suggests an inverse relationship between property value and investment return.

FUTURE ESTATE EBOOK SERIES: LUXURY VS AFFORDABLE

SUMMARY ■■

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Luxury properties are generally associated with superior locations, social status, poor affordability and lower investment returns. Affordable properties are generally associated with the mass market appeal, easy transferability and attractive investment returns. This generally means that more affordable property is better suited to property investors seeking longer term, sustainable rental and capital growth returns. It also means it is easier to sell affordable properties, if required, due to better liquidity at the lower end of the market. Historical data in Australia suggests an inverse relationship between the property value and investment return. Luxury properties have historically recorded higher return volatility than affordable properties. That generally means that during strong economic periods, the luxury market has performed well and during down periods, the luxury market has performed poorly. The luxury market is generally reliant on accumulated wealth and rising asset values, while the affordable market is generally driven by low rental vacany and stable investment return. Given current market conditions and outlook, affordable properties cater to the basic need for housing (of which there is significant shortage) rather than emotional, aspirational owner-occupiers. In order to maintain a sound investment strategy, a well diversified portfolio is considered at Future Estate. By investing in luxury property, a diverse portfolio is less affordable for most investors.

At Future Estate, we focus on high quality ‘investment grade’ property that is both affordable and offers clear potential for higher investment returns.

Call (03) 9988 2900 today to speak to a Future Estate expert property consultant!

FUTURE ESTATE EBOOK SERIES: LUXURY VS AFFORDABLE

XXX If you would like more information about us and our advisory services, investment properties and products, simply call, email or visit.

(03) 9988 2900 info@futureestate.com.au www.futureestate.com.au @futureestate future.estate future estate

This document contains general information and does not contain personal advice or financial product advice. This information has been prepared without taking account of your objectives, financial situation or needs. Accordingly, before acting on this information and making financial decisions, you should consider whether this information is appropriate for you and are recommended to seek independent financial, investment, tax and/or legal advice having regard to your own objectives, financial situation and needs. This information may contain material provided to Future Estate Group Pty Ltd by third parties. While such material is published with necessary permission, Future Estate Group Pty Ltd and its related entities accept no responsibility for the accuracy or completeness of this information, nor endorses it. To the maximum extent permitted by law, Future Estate Group Pty and its related entities disclaim all liability for any loss, costs or damage which arises in connection with the use or reliance on the information and material contained in this document. Any forward looking statements and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Furthermore, past performance is not a true indicator of future performance. Any past performance information in this document has been given for illustrative purposes only and should not be relied upon as an indication of future performance.

FUTURE ESTATE EBOOK SERIES: LUXURY VS AFFORDABLE