Financial advisors seek to classify investment asset classes based upon their expected returns and their risk profile. This makes intuitive sense because they can then customise and build a targeted portfolio based upon their clients’ individual situation. For example, their older clients may be aiming for predictable low risk returns, whilst their younger clients may be aiming for higher returns as they can afford to take on more risk. As residential property is one of the main asset classes which most clients hold in their portfolios, it is worth asking how most financial advisors classify residential property. We discuss below.

Firstly, from a return perspective, most advisors classify residential property as a high growth asset class. The Russell Investment’s Long-Term Investing Report shows Australian residential property has averaged a 10.5% p.a. gross return between 1995 and 2015. That is a strong return which compares favourably with most other asset classes. Secondly, from a risk perspective, most advisors classify residential property as being higher risk than cash and bonds, and lower risk than equities. According to ABS data, there have been only three years of negative nominal price growth across the Australian residential property market in aggregate over the past twenty years. That means there have been seventeen years of positive returns out of twenty, which is an impressive track record for residential property as an asset class. Importantly, during the three years when negative returns occurred, they were single digit negative returns in each case, which represents a much lower rate of correction and downside risk than equities experienced.

Landen’s Director Jim Dionysatos agrees: ‘Residential property investment is a high return, moderate risk asset class which translates to attractive risk-adjusted returns.’