Which is better: Shares Vs Property

Which is better: Shares Vs Property
Which is better: Shares Vs Property

It is the age-old query of anyone with capacity to invest. Which is the better investment - shares or property?

After allowing for costs, residential property has often provided a higher return than shares according to many studies. Both tend to be far superior to cash and bonds.

But the answer invariably depends on the selected timeline involved.

Property wins in the decade or two decades to December 2015, outperforming Australian shares for the lowest and highest marginal tax rates after gearing, but shares win in the 13 year period to December 2016. That's for an average Australia-wide property investment scenario, with Sydney property investors enjoying far greater success than say regional NSW investors.

Hence the determination really is best answered by your individual capacity, stage of life circumstances, the desired diversity and your outlook.

Much comes down to your risk tolerance, so for some bank deposits rank as the wisest place for savings. 

The recent spending spree by investors on Sydney property was hardly short-term speculation- rather actually driven by the flight to longterm surety with investors seeking a mix of yield and capital gain along the way to hopefully funding their looming retirement years.

Its exuberance almost ended up pushing too far, but it appears the regulatory cooling measures has nipped the Sydney boom back from the edge, before it gave way to a hurtful price reversal.

Housing investment is less volatile than the wild ride of the sharemarket.

And for many investors the actual bricks and mortar seem safer than the stockmarket and its share scrip.

You can always drive past your investment property and see it.

But those share certificates in the bottom draw of the desk in the home office can become totally worthless. These shares can also suffer at the hands of a market of short sellers, speculators who don't want shares to necessarily go up in price.

But property does also offer a much lower level of liquidity and diversification. Investing in the stock market comes with virtually no transaction costs apart from capital gains tax when you exit your investment. Shares potentially offer income and low costs as you don’t directly pay pesky maintenance costs, council rates and land tax bills. 

Your labour of love as an investor can see worrying times when the property is vacant.

A recent analysis from a cashed-up sharemarket investment company rightly warned the very long-term investment chart showed several occasions of property prices going down by significant amounts.

However the example it highlighted was the crash in 1896 when it took six decades before property prices recovered to their previous levels in real terms.

As we all know, past returns are not a good guide to future returns.

And the world is vastly different for the current generation of investors than pre-Federation 1896.

Investors do need to envisage worse case scenarios in our modern times, because yes price growth isn't guaranteed, and indeed prices can go backwards.

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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Investment Shares

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