I’m 23 years old. I’ve been in the workforce for 1 year after finishing my degree and I don’t have a good job or a career yet. I’ve recently inherited a little over $1,000,000 AUD.
I know there are reasons Australians have to buy a house. The first is you don't have to pay capital gains tax when you sell your Principal Place of Residence (PPOR). The second is that it's the easiest way for a normal person to get access to affordable leverage. Finally, it's a great forced savings mechanism for people without the discipline to save.
On the other hand, I feel like most Australian property investors are very emotional about their investments. They see the good performance over the last couple of decades and believe that that tells them anything about the future performance of the asset class. There's also the status associated with owning a home and FOMO about being priced out of owning a home that influences them to buy. Needless to say, emotional investments have rarely made for good investments historically.
Stocks seem attractive to me because of the 50 percent CGT discount for long-term holders. If you sell it slowly in retirement you can avoid paying CGT just as with a PPOR. Furthermore, while price to rental yields make purchasing property expensive in Australia right now, stocks don't have this same issue.
US stocks are expensive. The average PE ratio is extraordinarily high compared to the past. The current preference of Australian investors to overweight US stocks is probably in part due to the common fallacy of investors to look at past exceptional performance to extrapolate exceptional performance in the future.
Emerging market stocks are not, however. The PE ratios are low, and sentiment around EM stocks is pessimistic. They have done poorly the past 2 decades, after all. Meanwhile developing countries particularly in Asia seem to be making progress modernising and see no signs of slowing down. People there are industrious, educated and intelligent while Westerners doing the same jobs are often complacent, entitled, and lazy.
So what I'm saying here is that EM stocks, to my eye, are cheap and are a solid bet and that Australian property is overrated and expensive. Is there some argument for Australian property I'm not seeing here? Do the tax benefits of owning AU property trump any potential future outperformance of owning EM stocks instead?