Thinking that property will automatically begin outperforming if the stock market slows down is…well…not really thinking. There is the “liquidity” argument, that with superannuation flows so large, the money simply has to go somewhere. And the numbers seem to prove this.
“Australian property funds invested around $US6 billion ($7.42 billion) in Europe last year, more than half of it in Germany and a 350 per cent jump on 2005,” reported the Herald Sun earlier this week.
“Europe accounted for half of all Australian property investment outside Australia, where the supply of real estate assets is limited and investment demand for property is inflated by compulsory savings schemes,” the article continued. We hope the investors picking those “can’t-lose” European properties do better than the gents at Fincorp.
We don’t know much about the company. But it looks like about 8,000 investors are going to lose about $200 million dollars. The directors will probably walk, while the savings people invested in the company’s property schemes will not get up again. They are gone. Vanished. Consumed in bad deals, fancy yachts, and either poorly thought-out, or poorly-executed plans.
Cash, at least, is liquid. And here’s a question for you, why own shares in a bank that pays a 7% dividend when you can put your money in the same bank and get nearly that in interest on a savings account? Any takers? Capital appreciation? Maybe. But isn’t that what people who buy property with a rental yield of 2.2% say to console themselves? Hmmn.
The Daily Reckoning Australia