Property vs shares in Australia

By Greg Major*, BA (AsSt) BE (Hons) MBA, GAICD FFIN FAIM, Director, Blueprint Wealth

Australian housing has become severely unaffordable and many investors and first home buyers are asking whether shares are a better option than bricks and mortar.

According to the latest AMP.NATSEM report The Great Australian Dream – Just a Dream? median house prices have more than doubled to $417,000, while median after-tax incomes have only increased by 50 per cent to $57,000. Every capital city in Australia is now considered “unaffordable” with Sydney, Melbourne and Adelaide all “severely unaffordable”.

As it becomes increasingly difficult for people to enter the property market, many are weighing up whether shares are a better bet.

The pros and cons:

It’s cheaper and easier to invest in shares

While it may take many years to save enough for a deposit on a home, people only need around $1,500 to start a managed fund. The ongoing contributions are also more affordable than mortgage repayments, with most managed funds requiring a minimum top-up of just $100 per month.  For people who already have their own home, investing in shares can also be a more affordable option than buying a second property.

How liquid do you want your investment to be?

If an investor likes to be able to free up their cash in a hurry, shares are far more liquid than property.  Selling a home can be an expensive and time-consuming process, whereas shares can be offloaded or topped up quite easily.  The portability of shares also gives people the flexibility to switch their investments around in response to the market.

Consider your risk profile

Since the global financial crisis, many people have become more risk-averse.  While property is a relatively stable investment, the sharemarket can be quite volatile. It’s important for people to consider their risk profile when deciding what type of investment is best for them.  A financial planner can assist people in determining the level of risk they’re comfortable with.  For example, a younger person who has plenty of time on their side may be more risk tolerant than an elderly person who is close to retirement.

Weigh up the tax benefits

Landlords are able to claim a tax deduction for money outlaid on the general maintenance and upkeep of an investment property. However, shares can be an even more effective way of minimising tax due to the franking credits that may be received.

Which performs better?

There has always been a lot of debate about whether property outperforms shares over the long term and it can depend on the statistics that are used. According to Shane Oliver, Chief Economist and Head of Investment Strategy at AMP Capital Investors, the share market can be a better performer than property over the short term. However, the long term performance of property can give shares a run for their money.

Shares can be more hassle-free

Owning an investment property and all the responsibilities that come with it can be stressful. Attracting good quality tenants, ensuring the rent is paid on time and ongoing maintenance are just some of the potential issues.

The cultural factor

Australians have a love affair with the property market and this gives it a certain advantage over shares. The other benefit being that property is a tangible asset that also fulfils a social need in the community. This makes investing in a home more desirable for some individuals.

Whether investing in property or shares, the earlier people can start creating wealth for the future, the better. Before taking the leap, either way, it’s important to weigh up all the pros and cons.

At Blueprint Wealth we offer financial advice that is right for you, no matter what stage of life you are at. Contact us today to set up a plan that is right for you.

*Greg Major is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.

Any advice given is general only and has not taken into account your objectives, financial situation or needs.  Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.