PROPERTY versus shares: Now that’s a topic that can spark fiery debate among investors.
Diehard fans of each will gladly tell you that the other one is a stupid place to put your money, but most investment professionals recommend that people own both.
“Shares and property are both good investments but are almost opposites when it comes to every measure you can think of,” said Bruce Brammall, managing director of Bruce Brammall Financial.
To help work out what works for you, here’s a short comparison.
GROWTH
Investment returns should be measured in 10-year time frames, and here property is a clear winner. Our sharemarket is still valued 10 per below its record high reached a decade ago, but in the same period the average national property price has climbed 68 per cent. WINNER: Property
INCOME
Here’s where shares strike back. Dividend yields paid by Aussie shares average 4 per cent, and for popular stocks such as the banks it’s about 6 per cent. Rental returns from investment properties average 3.7 per cent. WINNER: Shares
VOLATILITY
Binnari Property managing director David Hancock said shares could be bought and sold quickly, which brought greater volatility. “Property tends to be much less liquid due to the inevitable sales process … resulting in less frequent market swings,” he said. WINNER: Property
COSTS
Mr Hancock said property entry costs included stamp duty and legal fees, holding costs included rates, management fees and insurance. “Investors should conduct upfront research to understand the potential costs for running any property, both today and in the future,” he said.
Mr Brammall said purchasing costs for shares were “pretty tiny, and you can buy them in smaller chunks”. WINNER: Shares
DIVERSIFICATION
Investors shouldn’t put all their eggs in one basket, but that’s exactly what buying real estate does. “You can buy instant diversification in shares by buying a managed fund or exchange traded fund, or with $50,000 you can get a diversified share portfolio,” Mr Brammall said. “If you buy direct residential property you are buying one property in one suburb in one street at a time.” WINNER: Shares
BORROWING POWER
Banks are more willing to lend you money to buy real estate, and at a lower interest rate. Increasing equity in a property can be the deposit for the next investment.
Mr Brammall said property investors “need to be comfortable with borrowing hundreds of thousands of dollars”. WINNER: Property
Real estate is often best if you want borrowing power with your bank.Source:Supplied
RISK
Property values can fall by hundreds of thousands of dollars, but a single share investment can be wiped out completely. Remember the GFC. WINNER: Property
SELLING
Shares can be sold for less than $20 a trade and you get your money in a couple of days. Residential property can take months to sell and cost thousands in fees. WINNER: Shares
TAX
Mr Hancock said most expenses for both were tax deductible, including interest costs. He said share dividends usually came with attached tax credits while property investors could claim handy tax deductions for writing down building costs and depreciation of new items. “Brand new properties currently receive preferential tax treatment over existing properties,” he said. WINNER: It’s a draw
And a draw is the most accurate result in the property versus shares debate. “What is the best investment? The answer is both,” said Mr Hancock.
NewsComAu. (2018). Property versus shares: know the differences before picking winners. [online] Available at: http://www.news.com.au/finance/money/property-versus-shares-know-the-differences-before-picking-winners/news-story/7f081736e98cd59e12e09f5c16b0ebd5 [Accessed 8 Mar. 2018].
