Are young Aussies better placed to make gains through super than property?
As residential property prices across the nation continue to rise, younger Australians must consider alternative investment options at their disposal.
With average property prices in NSW now exceeding $1.2 million, Dan Miles, managing director and co-chief investment officer at Innova Asset Management, has declared that younger Australians locked out of the property market should consider the investment opportunities within superannuation.
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Miles’ comments come as the use of superannuation for house deposits debate continues across the country, following a policy proposed by the shadow treasurer to allow first home buyers and women over 55 to draw down their super for a deposit.
Analysis conducted by the Super Members Council flagged that property prices could rise by almost $75,000 across Australia’s five largest capital cities, if first-time buyers were allowed to use superannuation to access a deposit.
Additionally, research undertaken by the Association of Superannuation Funds of Australia (ASFA) found that early access to super would not make home ownership more attainable for a majority of aspiring buyers.
Citing recent Australian Bureau of Statistics data showing that average property prices in NSW now exceed $1.2 million, Miles detailed these market conditions which have generated “unprecedented wealth for Baby Boomers” have also rendered younger Australians as “the collateral damage to rising property prices”.
“Younger Australians are in desperate need of solutions, but there are no politically simple ways to tilt housing back towards being a human right rather than a speculative asset class,” Miles stated.
“There will always be sound reasons to own a home that stretch beyond the financial realm, but many younger investors will also need to consider new ways to accumulate wealth, including through superannuation.”
With Miles describing financial leverage as having been a significant contributor to rising residential property prices, the managing director detailed that granting superannuation funds the ability to take advantage of leverage could potentially yield “attractive returns for savers”.
“Superannuation is a 40-plus year investment where volatility, which can be amplified by moderate leverage, can be managed,” Miles explained.
“While there are strict rules that prevent super funds from using leverage, perhaps it’s time to reconsider those rules given the superannuation system has been established for decades.”
Miles stated that within such an arrangement, the scale of super funds would enable borrowing “at (a) very low cost”, and subsequently offer a prime opportunity for further wealth creation.
“The average super fund has posted a 7.3 per cent annual return (or a real return of 4.5 per cent) over the 30 years ended 30 June 2023, according to ASFA.”
“Applying a moderate amount of leverage, combined with a greater allocation to equities or a more aggressive investment profile, should generate a similar or greater return than a leveraged property investment,” said Miles.
While the managing director cautioned that this reform would “not be enough to solve the housing crisis on its own”, Miles nonetheless stated that this strategy deserves “further consideration as a generation of young Australians face a long wait for political solutions to the current housing crisis”.
“The common saying that ‘your home will be your largest investment’ may need a recalibration, with superannuation potentially being the biggest asset future generations will have,” the managing director concluded.