KIM MACDONALD: Property wealth a double-edged sword for some owners

For all the belt-tightening amid the cost-of-living crisis, there is a subset of Australians who are earning $17 billion a week.

They are not all chief executives or managing directors and they may or may not be sports stars and celebrities.

For the most part, they are regular people like you and me — they are homeowners.

How can they possibly be earning such incredible amounts of money?

As property guru Gavin Hegney points out, property consultancy CoreLogic values the Australian housing market at $11 trillion.

Over the past year, Australian capitals have seen an 8 per cent price rise in dwellings, which is $880 billion over the year, or about $17 billion a week, give or take a few hundred million.

The astonishing jump in property wealth was highlighted last week by a home on Bruce St, Nedlands, in Western Australia, which sold twice in six months, earning $1800 a day between sales.

Selling through the same agent, with the same photographs, the property sold for $3 million in October last year, and $3.3 million in April this year.

Clearly, the rich are getting richer and the Great Australian Dream is slipping further away from renters.

Cheaper property is generally rising by higher percentages, but a recent Knight Frank report shows Australia’s luxury property sector is among the strongest in the world.

Perth’s top-tier market topped the Australian ladder, up 3.7 per cent over the past year to June, to become the 14th strongest luxury market of the 44 capitals studied across the globe.

This was followed by Sydney, up 3.1 per cent in value to sit at number 18 on the global ladder.

Brisbane’s luxury market has grown 2.4 per cent over the year and is number 20 in the study, while Melbourne’s best homes are 0.6 per cent more expensive compared to a year ago, and ranked the 31st strongest luxury market in the world.

With the sudden rise in property riches, it is a good time to consider what wealth means to you.

For some people, the windfall means very little right now, because buying another house in a similar neighbourhood would wipe out their gains.

Some will use the new equity to buy cars and holidays, reasoning that life is to be enjoyed. While that is true, it needs to be remembered that you will repay twice as much as you borrow at 6.3 per cent interest over 25 years.

Research by a US group called the National Endowment for Financial Education, found that 70 per cent of lotto winners go bankrupt within five years. So be cognisant of the human propensity to waste windfalls.

But the real challenge is facing those in a position to downsize to a small, cheaper home, or those with an investment property, as they now hold the double-edged sword of opportunity and risk.

They have the power to provide future security for their loved ones. But they need to consider, at what point does a lofty inheritance remove one’s ambition?

At what point does an heir’s thwarted ambition turn into entitlement?

When does easing the path ahead for one’s child rob them of the opportunity to find their own way in life?

At what point is boosting your tenant’s rent pure and utter greed? And how many of life’s luxuries will spoil your gratitude for them?

Don’t look to me for answers as to where the balance lay - journalists only specialise in questions — but I do know extremities tend to kill the gain.

And greed is a bottomless pit of dissatisfaction.