Average gearing is the average amount of
debt that property investors in Australia have relative to their equity. It is calculated by dividing the total amount of debt by the total amount of equity. The average gearing in Australia is currently around 60%, which means that for every $100 of equity that an
investor has, they have $60 of debt.
There are a number of factors that can affect an investor's gearing, including the size of their investment, the type of property they are investing in, and their personal financial situation. Investors with larger investments and those who are investing in more expensive properties are likely to have higher gearing levels. Investors who are using borrowed money to invest may also have higher gearing levels.
Gearing can have both positive and negative implications for investors. On the one hand, it can magnify the potential returns from an investment. For example, if an investor's property increases in value by 10%, and they have a gearing ratio of 60%, then their equity will increase by $160 for every $100 of debt that they have.
On the other hand, gearing can also increase the risk of an
investment. If the value of an investor's property decreases, they may be forced to sell the property at a loss if they cannot afford to make the repayments on their debt. This is why it is important for investors to carefully consider their financial situation and the risks involved before taking on too much debt.