Household net wealth sat at a record $16.2 trillion in the March 2024 quarter, boosted by a record level of property assets of $11.0 trillion as at 31 March 2024.  As a proportion of net household wealth, residential property accounted for around 67.9%, up from 61.7% in December 2020.

Households also held $1.46 trillion directly in equities, $1.73 trillion in cash and deposits, and $3.88 trillion in superannuation.  The key driver of household wealth gains in recent years has been rising property prices.

“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,” Mr Keith said.

“While property owners have benefited from property price rises, more defensive assets such as fixed income, and particularly private credit, can deliver more attractive yields than residential property and even fully-franked shares. That’s important because it is income-yielding assets that will support Australians in everyday living and in retirement,” Mr Keith said.

“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. Private credit can deliver investors yields close to 10% per annum, which is almost double typical yields on residential property which fall below 5%.

“In addition, many private credit loans are floating rate and returns can increase with changes in the cash rate or bank bill swap rate.  With inflation remaining sticky, the RBA Governor, Michele Bullock, said the central bank board did discuss the case for increasing interest rates at its June meeting, which indicates a positive outlook for the returns on private credit, as most corporate loans are floating rate. In sum, any rise in official rates could lift returns on private credit.”

According to Mr Keith, private credit offers an attractive level of regular cash income and return for investors, particularly in comparison to the long-run average returns of more volatile asset classes such as residential property and share markets.

“That is one of the main reasons that Australia’s largest institutional investors are allocating more to private credit assets. AustralianSuper is one of the largest investors and has allocated over US$4.5 billion (A$7 billion) in private credit globally, with the stated ambition to triple its exposure in the coming years. Overtime, I expect retail investors to follow the lead of Australia’s largest superannuation funds given the attractions of this asset class, ” Mr Keith said.

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Notes:
[1] https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-finance-and-wealth/mar-2024#households

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