A recent chart reported by MacroBusiness utilising data from the Australian Bureau of Statistics (ABS) should really make investors question owning property for investment purposes.
If you believe that an asset is worth the present value of the sum of its future cash flows then the chart in question showing a near zero real return from rents spanning a period from 1972 to 2012 is scary stuff indeed!
As Warren Buffett has indicated on multiple occasions, in general, equities are a better hedge against inflation than most other asset classes. Given the failure of rental yields to beat inflation over the past 40 years it would appear another reason investors can be better off owning stocks.
Shane Oliver, the chief economist at AMP Limited (ASX: AMP) appears to have come to a similar conclusion, with Mr. Oliver noting recently that the gross rental yield on housing is around 2.9% and that's before costs – it drops to around 1% after costs!
Returns like these certainly make the fully franked 4.7% dividend yield from Telstra Corporation Ltd (ASX: TLS) look mightily attractive!
Here are three other stocks to consider that are all paying yields far above the average return on residential investment property:
- National Australia Bank Ltd. (ASX: NAB) has a trailing yield of 5.5% fully franked.
- Carsales.Com Ltd (ASX: CAR) has a trailing yield of 5.2% fully franked.
- Platinum Asset Management Limited (ASX: PTM) has a trailing yield of 4.9% fully franked.
Buying a home to live in for your family's future involves decisions that aren't just about profits but also about lifestyle. In contrast, choosing property as an asset class over equities should be based on cold hard facts. On quantitative measures, property just doesn't appear to be stacking up at current prices and rents.
