Global markets have been thrust once again into a period of volatility, as geopolitical tensions escalate in the Middle East. The complex and fast-moving conflict has seen the Strait of Hormuz, a sea passage that sees approximately 20% of the world’s oil consumption pass through it, effectively shut down. With a crucial portion of the global supply now cut off, energy and oil prices have spiked as a result.
Share markets have reacted swiftly, with rising energy and oil prices triggering a global share market sell-off. Australian shares have dropped significantly with the ASX 200 falling by approximately 10% since the conflict escalated, hitting a 10-month low. Similarly, the US share market’s S&P 500 has declined by approximately 5%.
In times of global uncertainty like these, investors naturally reassess their portfolios in search of assets that can weather instability. Capital will often shift away from riskier assets, and the liquidity of the share market makes this simple for investors to execute. The real estate market is much less volatile in comparison, and property has been historically viewed as a safe haven during instability.
In this article, we explore why real estate is a stable and resilient asset, even in the face of global disruption, and how modern investment models are making the switch more accessible for investors.
"*" indicates required fields
Equity markets are highly reactive, particularly when it comes to geopolitical issues. Investor sentiment can shift within hours, triggering sell-offs and wiping out billions in market value. This has been evident in recent weeks, with share markets fluctuating in response to developments in the Middle East and rising oil prices.
In contrast, real estate operates on a different timeline. Unlike equity markets which are repriced almost instantaneously, property values are driven by long-term fundamentals and take longer to reflect changes. Factors such as housing supply volumes, interest rates, population growth and rental demand are all taken into account. This structural difference is a key reason why real estate tends to experience less immediate volatility and can weather the storm with more resilience.
The COVID-19 pandemic is an ideal example of how different asset classes can behave under extreme disruption. In early 2020, the ASX 200 plunged by more than 30% in response to lockdowns and store closures, which halted economic activity. The Australian property market, in comparison, told a different story.
According to Domain, national property prices rose by 5.8% in 2020 despite initial uncertainty. Even more telling was the recovery trajectory, with property values rebounding significantly after a brief dip. By March 2021, Sydney prices were already 3.9% above pre-pandemic levels, while Brisbane and Perth had risen by 6.9% and 5.3% respectively. Household wealth also grew by 7% in 2020 according to the Australian Bureau of Statistics, with residential property contributing to the largest share of that increase.
The real estate market’s resilience in periods of global instability comes from being grounded by real world demand, unlike other asset classes. The property market adjusts to changing economic conditions and demand for real estate will always exist, regardless of geopolitical tensions or market volatility. As a result, real estate has a baseline of stability that is rarely seen in more sentiment-driven asset classes.
Real estate also provides a degree of protection against inflation. When inflation causes the cost of building a new home to increase, the value of existing homes will also rise. Increases in rental income will also work to offset rising interest rates and mortgage payments, allowing investors to maintain the value of their income stream.
Real estate may not be immune to the impacts of global disruption, but it does behave differently. The property market is less reactive than other asset classes and is well-suited to long-term investment. In times like these, that makes real estate a stabilising force in a diversified portfolio, and a particularly attractive asset for investors.
While real estate is a secure and reliable choice for investors, the barrier to entry is typically far higher than other investment options. Purchasing an investment property requires a high capital outlay, and ongoing management and maintenance costs can draw down on the investment return. For some investors, this can mean being locked out of real estate investing altogether. However, this is changing with platforms like Fraxtor Australia.
Fraxtor Australia offers accredited investors the ability to invest in the same high-quality real estate assets, at just a fraction of the price. The innovative fractional investing model allows investors to take part in investment opportunities for as little as $5,000. This approach allows investors to diversify across multiple real estate assets and earn attractive fixed returns with ease.
If you’re an accredited investor looking to build a more resilient investment portfolio, join Fraxtor Australia to access premium real estate opportunities.
Sign up for our newsletter to stay in touch with global real estate news and opportunities.
"*" indicates required fields
