Household wealth hits record $16.2 trillion, driven by property surge

Australian household net wealth has reached a new high of $16.2 trillion in the March 2024 quarter, with residential property accounting for a growing share of assets, according to new data.

The Australian Bureau of Statistics figures show that residential property assets totalled $11.0 trillion as of March 31, 2024, representing 67.9% of net household wealth. This proportion has increased from 61.7% in December 2020.

Tim Keith, Managing Director of Capspace, suggests that this concentration of wealth in property may signal a need for Australians to diversify their portfolios.

“With such a large proportion of individual wealth tied up in property, it makes sense for investors to diversify into other asset classes, to lessen their risk of their wealth falling should residential property prices pull back on higher interest rates and any slowing in the economy,” Keith said.

The data also revealed that households held $1.46 trillion directly in equities, $1.73 trillion in cash and deposits, and $3.88 trillion in superannuation.

Keith highlighted the potential benefits of more defensive assets such as fixed income and private credit, which can offer attractive yields compared to residential property and fully-franked shares.

“Private credit, or non-bank loans, for example, offer investors a relatively attractive income stream and capital protection through stringent loan process, along with the security taken over borrower assets,” Keith explained.

He noted that private credit can deliver yields close to 10% per annum, almost double the typical yields on residential property, which fall below 5%.

Keith also pointed out that many private credit loans are floating rate, meaning returns can increase with changes in the cash rate or bank bill swap rate. This could be particularly relevant given recent comments from RBA Governor Michele Bullock about potential interest rate increases.

According to Keith, major institutional investors like AustralianSuper are already allocating significant funds to private credit assets. AustralianSuper has invested over US$4.5 billion (A$7 billion) in private credit globally and aims to triple its exposure in coming years.

“Overtime, I expect retail investors to follow the lead of Australia’s largest superannuation funds given the attractions of this asset class,” Keith said.

While property owners have benefited from recent price rises, Keith suggests that diversifying into income-yielding assets like private credit could provide better support for everyday living and retirement.