The global stock markets have recently experienced one of the largest falls in more recent times. While investors may have concerns property markets seem to have been unaffected despite the gyrations of the share markets. Will the volatility of the stock market affect Australia’s property markets? Investment property accountant Chan & Naylor talks about it.
It is important to understand why the stock market fell. The truth is, the drop was not caused by any significant change in business fundamentals but rather by fear of rising interest rates because of rising inflation and jobs growth in the U.S. We must also remember that the declines happened only after massive gains in share prices during the past year.
Share prices are more volatile than property prices because the former are more liquid and these fluctuations are normal in most individual share prices. The price of a stock can double in a year or lose a substantial amount of value the next but properties are not as volatile due to it’s a lack of liquidity, and owners not normally panic selling.
Investors can sell their shares with just a press of a button but it can take a while to sell a property. Even refinancing properties can take time to organise. However, it may not necessarily be a bad thing. If an investment is liquid, it may not be that stable and will likely have more volatile value fluctuations.
Another difference is that the market price of any share is easily accessible through a smartphone but there is no specific value to a property. A consensus will take time and may affect the expectations of sellers and buyers and it’s best to consult an investment property accountant for advice.
Share investors are more likely to panic sell when they see that the value of their shares falling but in contrast, property investors may not be so easily panicked. Even if they decide to sell, it may still take several months to sell a property. The property market is dominated by owner occupiers (non-investors), many of whom don’t have a mortgage, a major reason why this market is generally more stable.
Higher local interest rates may stifle our property markets but Australia’s economy remains sound overall. As has happened in previous times a decline in share markets may even strengthen the property markets. Talk to an investment property accountant to find out all the options available to you.
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