Negative gearing or not, property was never an easy ticket to wealth

For a long time, property has been the default wealth-building option in Australia. Got a bit of money sitting in a bank account? Just stick it into a property. After all, so often are the phrases “rent money is dead money” or “you can’t go wrong with property” casually thrown around.

If you are now questioning whether property is worth investing in moving forward – I don’t think that’s such a bad thing. I’ve spoken to many property investors who jumped into property far too quickly and then end up sitting on under-performing investment properties for years, living in the hopes that one day, if they just hold out long enough, their returns will be realised.

This isn’t because property is a bad investment. It’s because property both as an asset and as an industry is far more complicated than most people realise. Today, I want to unpack some of those complexities. I’m hoping you’ll see that, with or without negative gearing, property was always a complicated investment option that wasn’t an easy ticket to financial freedom.

One of the significant differences between property and shares is that property isn’t considered a ‘financial product’ by Australian financial services laws the same way that products like insurances, shares or superannuation are. This has some pretty far-reaching implications.

If you’re a beginner investor, you might think shares and property exist in the same category: the world of investing. As you start learning about investing, you might talk to some people – your uncle is a mortgage broker, and he gives you some real-estate tips, your cousin is an accountant and talks to you about superannuation, and your sister’s friend is a buyer’s agent.

You assume these are all people who are financially educated and know what they’re talking about. To an industry outsider, it might seem like they all work in the financial industry.

Property as an investment has always been more complicated than our cultural obsession leads us to believe

But they don’t really. Someone who is talking to you about ‘financial products’ as defined by Australian law (like superannuation or shares) is operating under a strict regulatory regime that tightly governs what they can and can’t say – but someone talking about property is not.

For example – a financial planner who is designing an investment plan for you is required to consider your financial situation. A buyer’s agent who is selling you a property or a developer promoting their new development is not bound by the same financial advice regulations.

Why does this matter? It means that property can often be promoted far more aggressively and casually than regulated financial products. It is easier to sell the dream of financial freedom through property than other asset classes. It’s easier to talk about property returns, than it is to even casually suggest that an ETF or high-growth superannuation portfolio is a good idea.

It also means that property and ‘financial products’ operate as almost two separate industries that don’t always speak to each other. If you talk to a financial planner about investing, they’ll create a stock-market portfolio for you. But if you want to buy a property, while they might help you with cashflow planning, they won’t pick and design a property portfolio for you.

The reverse is also true. If you’re working with a mortgage broker or buyer’s agent, they may not be equipped (or allowed) to advise you on your superannuation or stock market investments.

So, you might engage a buyer’s agent to help you buy a property thinking this is going to move you towards financial freedom. But their role is focused on helping you buy a property. The extent to which this property purchase is the optimal move for your financial goals is not necessarily something they’re required to consider.

It’s not part of their job. Would you be better off moving your superannuation into a high-growth, low-fee portfolio, maxing out contributions, and then putting the rest into a low-fee index fund? Maybe. But that’s not for them to figure out.

All of this makes the real-estate industry a tricky place to navigate for beginners. You end up with an environment where many beginner investors jump into an expensive investment they don’t fully understand the workings of – and might not ever realise its promised potential.

The point isn’t that you shouldn’t invest in property. The point is that property as an investment has always been more complicated than our cultural obsession leads us to believe. It can be just as complicated as investing in the share market – just in different ways.

When you unlearn the idea that property is an easy ticket to building long-term wealth and start to understand the complexities of the asset, you might see that losing some tax benefits was never the greatest challenge to creating long-term wealth through property in the first place.

Paridhi Jain is a money and mindset coach who combines practical strategies with mindset transformation to help clients create more freedom and fulfilment in wealth, work and life. Find Paridhi at: skilledsmart.com.au

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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