Planning for the future and the next generation

Despite the pain of ongoing lockdowns, and nearly a million jobs disappearing, at the end of 2020 Australia's household wealth was surging. According to the Australian Bureau of Statistics (ABS), household wealth increased by $501 billion in the fourth quarter of last year - the strongest growth on a quarterly basis since December 2009.

Average wealth per person hit $467,709, and total household wealth hit $12 trillion — a record on both fronts.

Yet more than 900,000 people were still officially unemployed in December, and the unemployment rate was still 6.6 percent, so how could household wealth have been hitting record levels?

It's because "wealth" and "income" are very different things.

Wealth encompasses a net asset base after debts have been paid, taking into consideration aspects like real estate, stocks, and superannuation savings. Income, on the other hand, is categorised as wages, royalties, pensions and dividends when judged by the ABS.

With the value of Australia’s residential real estate jumping by $207 billion in the three months to September, and by $247 billion in the December quarter, the wealth surge at the end of 2020 was driven largely by the increase in real estate values, as well as superannuation savings. The rebound in the stock market attributed $166 billion to super in the December quarter.

According to May 2021 data released by CoreLogic, the aggregate value of residential property prices in Australia has exceeded $8 trillion, rising to $8.1 trillion, and is anticipated to reach $9 trillion. Sydney’s value is the highest at $2.53 trillion, with Melbourne following at $1.74 trillion and Brisbane third at $626.7 billion.

With wealth made up primarily by main home (39 percent), superannuation (20 percent), shares and other financial assets (19 percent), according to the Australian Council of Social Service, the inequality in wealth is striking. The highest 10 percent of households by wealth own 46 percent of all household wealth, the next-highest 20 percent have an average net worth of $3.3 million and the lowest have an average wealth of $36,000.

According to the 2021 Knight Frank Wealth Report, property ownership has created a significant wealth gap between Baby Boomers – those born between 1946 and 1966 – and Generation X, Y and Millennials. Baby Boomers make up just 25 percent of Australia’s population but control a massive 53 percent of its national wealth.

With the populace of high net worth individuals (HNWIs) and ultra-high net worth individuals (UHNWIs), those worth more than US$1m and US$30m respectively, continuing to increase globally it’s no wonder the transfer of wealth is getting so much attention. In Australia, the population of HNWIs and UHNWIs is projected to increase by 22 and 20 percent respectively between 2020 and 2025, proving that this will factor into planning, advice and investing for decades to come.

With all this wealth being created, and showing no sign of slowing down, the question must be asked: how will it find its way to the younger generations?

Transferring wealth to younger generations

With all these opportunities to create wealth, diversify, invest and grow portfolios, it’s no wonder that 60 percent of respondents to Knight Frank’s survey had re-assessed their attitudes to succession planning in the wake of COVID. Coupling this statistic is the 48 percent of family offices that have reassessed their attitudes.

In Australia, largely as a result of the COVID-related stimulus, federal, state and local government deficits will be $193 billion (or 9 percent of GDP) in 2021-22 as we move into the post-COVID economic recovery phase, down from $263 billion (or 12.8 percent of GDP) in 2020-21. This deficit will mean a likely lean towards the inflows of skilled, tax-paying migrants.

Bringing this back to personal wealth, in the years preceding COVID our population was growing at approximately a quarter of a million people per annum, primarily from immigration. Today’s population sits at around 25 million people, and we have around 10.5 million residential dwellings – that’s about 2.4 people per dwelling. As the international borders open and the government encourages inflows of working, tax-paying migrants to recoup the COVID deficit, the lead time on new housing and apartment supply will mean a lag in supply to meet the market demand. As a result, pricing will further increase. What this means is an increasing gap between those who have been able to enter the market and ride the upswing, and those who haven’t. Younger generations will be increasingly priced out of the market, and the net worth of those with exposure to the residential housing markets will continue to climb exponentially.

You can listen to this topic in more depth on the MP Report’s Property Investment Podcast, with Rich Lister and developer Tim Gurner, and Managing Director of CBRE residential Projects David Milton.

Tim Gurner is a self-made multi-millionaire and AFR Rich Lister with an estimated net worth of $608 million, made via his residential apartment development business GURNER TM. As part of the MP Report’s Property Investment Podcast, he talks through his $7billion residential development pipeline and the key drivers that he believes are creating the upwards pricing pressure in Australia’s residential markets. 

David Milton, Managing Director of CBRE Residential Projects, sells up to 4000 apartments annually in Sydney, depending on the market cycle. In the MP Report’s Property Investment Podcast, David talks through the relationship between immigration, the COVID-driven deficit and apartment supply shortages driving pricing upwards. 

MP Funds Management has provided investment funding for the construction of over 1100 residential dwellings and provided an annual investment return of 22% (IRR).

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Mandi Prager
Founder and CEO
MP Group

MP Funds Management has executed more than 28 investment-grade real estate deals, an aggregate value of over 1.3 billion dollars in assets, producing an average investment return of 22 percent annually (IRR), with the lowest returning investment...

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