Capgemini has released its 2015 World Wealth Report, which reveals that the number of millionaires in Australia (excluding owner-occupied housing assets) grew by 4% last year on the back of rabid property investment.
As noted in The Australian today, which interviewed the report’s author, Australia’s high net worth individuals (HNWIs) have one of the biggest appetites for residential property in the world:
…rich Australians typically had 35 per cent of their wealth in property compared with a global average of 22 per cent.
“Australians invest far more than average in real estate than most millionaires do,” said Dorus van den Biezenbos, a wealth management expert at Capgemini.
“It’s partly cultural — Australians like to own property; but both Australia and Netherlands have negative gearing, which allows owners to deduct borrowing costs against their wage income, and not coincidentally they also show strong demand for real estate as an investment,” he said.
Apart from property, Australian HNWIs had 22 per cent of their wealth in equities, 23 per cent in cash and deposits, and 11 per cent in fixed income.
In can’t say I am too surprised by this result, since it mirrors the experience of Australians more generally.
One of the “benefits” of having one of the most expensive housing markets in the world is that it inflates the value of household wealth.
Australians along with their Kiwi cousins (who also have negative gearing) have a particularly high exposure to property and a low share of wealth stored in liquid financial assets (see below IMF charts).
Australians have over-invested in what is essentially an ‘unproductive asset’ (housing). And the house price inflation arising from this over-investment serves little purpose to the vast majority of home owners, who generally must sell and buy into the same market.
In turn, we as a nation have engineered a situation (expensive housing) that also punishes those who have recently entered, or are yet to enter, the housing market, who are required to either take-out mega-mortgages and live a life of debt slavery, or miss-out altogether.
Pretty dumb really.
