Property or Shares?

Which is the best investment… property or shares?

It’s a question that has been argued for generations. Proponents from both sides of the fence will offer their opinions and try to influence investors on where to place their funds for the best returns.

Many are persuaded by stockbrokers and financial planners that shares are the best vehicle for wealth creation. Similarly, real estate agents will be equally convincing that property is the only way to go.

So what is the truth?

If you want a truly independent, unbiased answer, simply ask the moneylenders… the banks. They will happily lend you money to invest in shares or real estate. Contact ANZ, CBA, NAB or Westpac and ask them just two questions…

Q1  “What percentage of the value of a house or unit will you lend me for investment?” ANSWER – “We will lend you up to 90% of the property’s value (and up to 97% if buying as an owner-occupier).”

Q2  “If I buy shares in your bank, what percentage of their value will you lend me?” ANSWER – “We will lend you a maximum of 75%.”

So my friends, there’s your answer. If the four biggest banks in the country will only lend you 75% of the value of their own ‘blue-chip’ shares, they are telling you that residential real estate is a far safer, more stable, long-term investment.

The reason for this is simple. No one needs to own shares, but everyone needs a place to live. Bankers also know that sharemarkets are inherently volatile and are on a perpetual roller-coaster ride between ‘booms and busts.’

When the sharemarket inevitably crashes, advisers try to calm clients with platitudes like “Over time, the market always rebounds to a higher level than its previous peak.”

Somehow, I don’t think that sentiment would have been very comforting to the millions of investors who lost fortunes when these crashes occurred:

  • Between September 1929 and July 1932 the Dow Jones suffered an incredible 89% fall. It didn’t recover to its pre-crash peak until November 1954… 25 years later!
  • The All Ords crashed spectacularly in October 1987, wiping 27% off its value in just one day and 46% over three weeks. It was 6 years before it recovered to its previous high.
  • It’s been a whopping 29 years since the Nikkei peaked at 38,957 in December 1989, and it’s never come close to replicating that feat again!
  • In March 2000, NASDAQ reached a peak of 5,132 before crashing. It didn’t regain that level again until June 2015… a full 15 years later!
  • The All Ords hit an all-time high of 6,873 on 1st November 2007 before it started a long slide downwards. It took almost 12 years to recover.

Interestingly, ASX listed property developers such as Devine, FKP, Lend Lease, Stockland, Mirvac, AVJennings, Australand, Villa World and Sunland all saw their share prices decimated between 2007 – 2009, with falls ranging from 58% to 96%, while the values of the houses and units they built fell less than 10%.

This graphically highlights the relative stability and security of owning real bricks & mortar verses shares.

Ultimately, the question of which is the ‘best’ investment will depend on a number of factors including your age, your income level, how much debt you have, and how risk averse you are. If you’re retired, capital guaranteed investments or regular monthly income from a rental property may offer you much lower levels of risk compared to the volatility of the sharemarket. However, if you’re in your 30’s or 40’s and have a secure  job, you may want to invest in a mix of property, shares and managed funds (either directly or via a self-managed super fund).

Always seek professional advice before making any investment decision and remember that ANZ, CBA, NAB and Westpac all consider residential property to be a safer investment than shares in their own banks!

UPDATE: The 2018 Russell Investments/ASX Long-Term Investing Report reveals that Australian residential investment property was the best performing asset class over both the 10-year and 20-year periods to 31st December 2017.

The report shows that residential property comprehensively outperformed other traditional asset classes including Australian and global shares, managed funds, bonds and listed property. 

© Brian White – This article courtesy of https://www.brisbaneunitsales.com.au The article may be reproduced provided the above courtesy notice and author name remain intact.