Property remains king but investors diversifying their strategies

Property has long been the cornerstone of wealth creation in Australia.

But while real estate continues to dominate household balance sheets, there are growing signs that investors are increasingly looking beyond bricks and mortar; not as a replacement, but as part of a broader diversification strategy.

The shift is subtle rather than structural.

Recent data shows investor activity in property remains strong, with lending and participation levels still elevated in many markets.

At the same time, however, other asset classes, particularly exchange traded funds (ETFs), are experiencing rapid growth, suggesting a change in how Australians are allocating capital.

Australia’s ETF market has expanded sharply, with total assets surpassing $330 billion and continuing to grow at pace, driven largely by inflows into global equity funds.

Trading activity has also surged, with annual ETF turnover rising 39 per cent to a record $198 billion, reflecting increased investor participation.

This growth is not occurring in isolation.

Rising property prices, higher interest rates and borrowing constraints are increasing the barriers to direct property investment, particularly for newer entrants. As a result, some investors are turning to more accessible, liquid alternatives.

ETFs, in particular, offer low-cost exposure to diversified portfolios, including international markets that have historically delivered stronger returns than domestic equities.

For those still seeking exposure to real estate, listed property vehicles are also playing a larger role.

Real estate investment trusts (REITs) and property-focused ETFs allow investors to gain exposure to commercial and residential assets without the capital outlay or illiquidity associated with direct ownership. These structures provide access to diversified portfolios of income-producing properties, while also offering the ability to buy and sell on-market.

In that sense, they represent a form of “property-lite” investing, maintaining exposure to the asset class while avoiding some of its traditional constraints.

Importantly, this does not point to a wholesale shift away from property.

Australia’s housing market continues to deliver strong outcomes, with price growth and tight rental conditions underpinning investor demand in many regions.

ETFs, REITs become investment alternatives

According to KPMG data released Monday (30 March), Australia had its second-best quarter for building approvals in the last 18 months with the number of new homes receiving approval rising 0.9 per cent in the January quarter to 48,692.

In the December quarter, the value of residential land and dwellings rose 3.2 per cent ($368.6 billion). 

Instead of being a shift away from a property market that has been so lucrative, the emerging trend appears to be one of diversification, particularly among younger investors.

With affordability constraints making direct property ownership more difficult, many are entering the market via equities and ETFs, building wealth before considering property at a later stage.

This generational shift is also contributing to greater interest in global markets, with investors increasingly looking offshore for growth opportunities and portfolio diversification.

Australian ETFs pulled in a record $53B in net inflows in 2025, 76 per cent above the prior year, according to InvestmentMarkets data also released Monday.

Even allowing for that escalation, the relationship between property and shares is not necessarily a binary one.

For many investors, the two asset classes serve different purposes. Property has traditionally offered leverage and relatively stable, long-term capital growth, while shares and ETFs provide liquidity, diversification and easier access.

REITs sit somewhere in between, combining elements of both.

REITs are not a form of ETF. Instead, REITs are companies that own or finance income-producing real estate. While you can buy individual REIT stocks directly, REIT ETFs are funds that buy shares in many different REITs, offering diversified, low-cost exposure to the property market

They deliver income through distributions derived from rental streams, while also offering exposure to large-scale assets, such as office buildings, logistics facilities and retail centres, that would otherwise be out of reach for most individual investors.

The current economic landscape has implications for REITs.

Rising interest rates generally cause short-term underperformance for REITs by increasing borrowing costs, compressing valuation spreads, and reducing demand due to higher alternative income yields. However, over the long term, REITs often act as an inflation hedge, as rising rates typically accompany economic growth, allowing for increased rents.

With inflation ramping up again and the war in the Middle East causing significant economic uncertainty, REITs will face their own challenges.

That uncertainty has led to investment in alternative assets (gold, commodities, infrastructure) rising 54 per cent in the past four months. Mortgage funds and global equities funds also outpaced the platform’s overall 19 per cent growth rate over the comparison window.

Darren Connolly, CEO of InvestmentMarkets, told API Magazine there seemed to be marked differences in investor interest in property debt versus equity.

“Overall, there is a general lack of housing supply, given the high cost of getting a building out of the ground in most property markets.

“This is favourable for investors/owners in built assets with rents rising and incentives reducing, however, the change in the interest rate environment has meant conditions for investors have gone from tailwind to headwind.

“Investor interest is still nominally growing (15 per cent) but some of the wind has definitely come out of the sails.

“Over the same time, rising rates mean potentially better returns for mortgage funds and that has translated into investor interest in the debt side of the equations growing 2.75 times faster than the equity.”

Investors are mixing and matching

The broader implication is that investment behaviour is evolving.

Rather than relying solely on property as a primary wealth-building tool, Australians are increasingly constructing multi-asset portfolios that balance growth, income and flexibility.

That shift may become more pronounced if policy changes, including potential reforms to negative gearing or the capital gains tax discount, alter the relative attractiveness of property investment.

For now, however, property remains firmly embedded in the national psyche.

What is changing is not its importance, but its dominance.

Investors are no longer choosing between property and shares in absolute terms. Instead, they are combining both, by using listed markets to complement, rather than replace, traditional real estate holdings.

In a more complex economic environment, diversification is becoming a more popular investment strategy.