Property or shares in – today’s market?

Battle of the titans - property versus shares

Property and shares are the heavyweights of asset markets. But which investment is right for you? We weigh up the pros and cons of stocks versus real estate in today’s market.

The question of whether to invest in shares and/or property is a highly personal choice. Both are favourites among Australian investors and both have the potential to deliver strong long term returns. We look at seven key factors to consider.

Capital growth

While past returns are no guide for the future, residential property values have forged ahead in many areas over recent years. For the financial year ended 30 June 2017, property values rose 9.6% nationally1 though with significant difference between states. As a guide, Sydney (up 12.2%) and Melbourne (13.7%) achieved stellar gains, while values declined in Perth (down 1.7%) and Darwin (down 7.0%). By comparison, over the same period, Australian shares (as measured by the S&P ASX 200 Index) notched up capital gains of 8.35%2.

Both shares and property are ‘growth’ assets, often delivering their best gains over the long term. Here too, property trumps shares. Over the current growth cycle, which commenced broadly in 2012, residential property values at a national level have jumped by a total of 50.5%, equating to average annual growth over the five years of 10.1%3. Shares, on the other hand, recorded an annual average gain of 6.53% over the same period4. Of course individual properties and shares may not have achieved the same types of results over the same period.

While our homes are exempt from capital gains tax (CGT), any profit on the sale of both investment properties and shares are lightly taxed with a 50 per cent discount applicable when the asset has been held for more than 12 months.


Shares and property both generate ongoing returns – rent for landlords and dividends for shareholders. At present, houses nationally are delivering rental yields of 3.0% while apartment yields are slightly higher at 4.0%5. Bear in mind, today’s very low interest rates are helping to push down the cost of owning a rental property – a big plus for investors.

Whilst rent returns can usually be predicted with some certainty, at least for the duration of a fixed term lease, dividends are not set in stone. Company boards have discretion over whether or not to pay a dividend, and the quantum of the dividend paid, so dividend yields depend on which shares you hold. At the top end of the scale, historical dividend yields have been as high as 8.56% for companies like Harvey Norman Holdings, Tabcorp (8.15%) and Telstra shares (7.09%)6. Dividends are lightly taxed as shareholders usually receive credit (called franking credit) for company tax paid on the profits that dividends are paid from.

Entry and exit costs

A key drawback of property can be the high cost of buying and selling real estate. A Sydney apartment costing the median price of $750,0007 can attract a stamp duty bill of $29,240 for the purchaser. Additional costs such as an agent’s selling commission may apply at sale time, eating into an investor’s profit on sale. On the plus side, many of these costs can be deducted from an investor’s profit on sale when CGT is calculated.

Share trades on the other hand can attract brokerage of less than $20 with zero stamp duty impost.


Possibly one of the most appealing aspects of residential property traditionally has been that it’s a highly tangible investment we can see, touch and admire. Moreover, investors have greater control over what happens physically to their property – including the ability to add value through small scale improvements or even major renovations (though of course this also brings the risk of overcapitalisation in a falling market). The same can’t be said of shares, and investors place considerable faith in a company’s board of directors to manage the company on their behalf.


Shares are a highly liquid asset that can be easily converted to cash if funds are needed in an emergency. By contrast, it takes time to sell a property – and it’s an ‘all or nothing’ transaction. Property investors can’t simply sell a bedroom when cash is needed. This lack of liquidity might be overcome by maintaining a pool of emergency cash.

Ongoing expenses

Like our homes, a rental property must be managed, maintained and insured, all of which involves ongoing expenses. Many of these costs, including interest on an investment loan, can be claimed against tax, and this helps form the basis of ‘negative gearing’. Put simply, it means investors can offset a property’s ongoing costs against rental income. Any resulting loss can be used to reduce income from other sources (like regular wage or salary) to provide valuable savings on tax.

Shares on the other hand, come with near-zero ongoing costs – the possible exception being the cost of organising the necessary paperwork to report dividend income at tax time.


Gearing, or borrowing to invest, offers a means of owning an asset and enjoying 100 per cent of the returns, even though an investor may only contribute a small amount of personal cash to the purchase.

Property offers greater opportunities for leverage than any other asset – up to 80 per cent of the property’s value (sometimes more) can be borrowed. The downside is that a lender has the right to foreclose on the loan if a borrower cannot keep up with the repayments.

Shares can also be leveraged using a margin loan. However, if the shares dip in value, the lender may issue a ‘margin call’, demanding extra cash be tipped into the loan to bring the borrowing ratio back to its original level – something that can leave investors scrambling for cash following a market downturn.

The bottom line is that borrowing to invest – be it for shares or property, does bring risks. Just like sharemarkets, property markets can, and do, take a dip in the red from time to time. With wide variations between markets across Australia, it pays for all investors to thoroughly research any area they plan to buy into.

What's right for you?

Happily for investors, shares and property are not mutually exclusive. It is possible to own both assets – and many investors do. After all, diversification is one of the cornerstones of successful investing.

But understanding which blend of shares and property is right for your investment portfolio calls for expert advice. To understand how you might be able to make the most of both asset classes – and to get started with investing, contact us to arrange a meeting.

1 CoreLogic Hedonic Home Value Index, June 2017 Results
2 as at 3 July 2017
3 CoreLogic Hedonic Home Value Index, June 2017 Results
5 CoreLogic Hedonic Home Value Index, June 2017 Results
6 end Yield Scan
7 CoreLogic Hedonic Home Value Index, June 2017 Results

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