How does a property investment compare to shares?

Comparing shares and property is an age-old argument!
Analysing purely on a short-term basis, will naturally favour one option over another, depending which time period you choose.
On the face of it, investing in stocks can appear more volatile than property, a point that stock market believers have to concede. But, is this really the knockout blow for equities in this great debate?

If you subjected the property market to daily trading, like stocks, it too, would appear very volatile. So, let’s start comparing apples with apples. As there is no modelling tool to see property being traded like stocks, let’s look at stocks being treated like property over the long-term.

Looking at the last 20 years, enables a fairer representation of the results, and a more realistic comparison. According to ABS data, the median house price in Australia in 1996 was $143,921. In 2016 the median house price was $623,000. An overall gain of 332% or $479,079. Not too shabby.

Comparatively, if you had a portfolio made up of an average mix of ASX200 stocks, and it was worth $143,921 in 1996, in 2016 it’d be worth $822,000. Now that’s pretty good, a clear profit of $678,079, or 471%. And, the cost of maintaining this asset is virtually zero compared to typical costs of owning property, like stamp duty, council rates, body corporate fees, general maintenance and insurance, which are ongoing, and can run into the tens of thousands.

But at the end of the day, there is actually no right or wrong answer – it comes down to your preferences and approach to risk.

Both asset classes – shares and property – are considered to be growth investments. In other words, over time, a quality investment in shares or a property could generate capital growth, with some income from rent (property) and dividends (shares) thrown in for good measure.
Ease of entry into the share market is a big plus for equity investors. You can buy into the share market with as little as a few hundred dollars. In comparison, home and apartment prices in our capital cities could easily cost you upwards of $1 million.

The transaction costs of investing in shares such as brokerage and transaction fees are significantly lower than the stamp duty and legal fees that you’ll pay as a property investor.
Finally, with a share market investment, you could get almost instant access to your money when you decide to sell. Equally, you don’t have to sell the entire investment to get access
to some cash. With an investment property, you can’t sell a bedroom to free up some cash – it’s the entire property that goes to market or nothing.

A major appeal of owning a property is its perceived stability relative to the share market, where values can vary widly from day-to-day as a consequence of how easy it is to buy and sell shares. If you’re approaching retirement, this level of volatility may not be for you.
A property investment, on the other hand, gives you a tangible asset that can deliver a sense of investment security as well as some capital growth and income.