Shares or Property – what’s the better performer?

Ahh, that old chestnut…  It’s a question that is often asked.  What performs better?  Shares or property?

On a capital appreciation measure over the past decade, the past half-decade, and over the past three years, residential property has well and truly outperformed shares.  Over the most recent twelve month period shares have outperformed the housing market.

It’s important to note that the share market has shown periods where capital gains have been substantially higher than what has been achieved in the housing market.   As can be seen in the ‘rolling annual change’ graph below, the annual growth rate in the ASX 200 has been has high as 39% over a twelve month period (the year ending February 2010); share prices have also fallen by more than 40% in the space of a year, which is what happened during the GFC (the ASX 200 fell by 42.7% over the year ending November 2008).

Capital city dwelling values haven’t shown anywhere near the same level of volatility.  The largest rise over any twelve month period, based on the RP Data-Rismark eight city aggregate index, was 21.0% over the year to May 2002, and the biggest fall was recorded just recently when dwelling values fell -5.3% over the year to May 2012.

While the volatility of the share markets may appeal to some, it is the stability and resilience of residential housing that is likely to be one of the key reasons why investing in the housing market is a popular choice for mum & dad investors.

 

 

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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10 Responses to Shares or Property – what’s the better performer?

  1. Duncan November 2, 2012 at 11:58 am #

    Just like margin loans, mortgages have a clauses allwing the loan to be called in. If this is the case, which asset would be liquidated the easiest and with less discount?

    As asset classes, and especially when leveraged with debt, they are not the same in terms of liquidity or risk.

    Does this account for capital injections (renos and improvements) to lift the house prices? RPData touts the hedonic index of course.

    Also do not forget underperforming shares fall out of the ASX200 and performing shares enter the index, so the same shares are not included in the index over the course of the data.

    • Leigh November 2, 2012 at 7:02 pm #

      @Duncan +1

      It would be better to include dividends in the ASX200 returns (real return) … and may be include the negative gearing of so many investment properties … now that would be an interesting chart to see.

    • Tim Lawless November 4, 2012 at 8:03 pm #

      All good points, thanks Duncan, the liquidity and ease of disposal for shares is a big plus. The index attempts to control for capital injections by excluding any transactions where the attributes are seen to have changed between periods. For example, if we know 21 Smith Street, Smithsville, is a 3 bedroom, 2 bathroom home on 607sqm of land, then one day we see a new transaction fro this property and it has a smaller land area (subdivided) or another bathroom (renovated), that transaction will fall out of the analysis. Smaller renovations or capital injections do fly under the radar – typical examples would be landscaping, a back deck, a new kitchen etc.

      • SonP November 5, 2012 at 10:28 am #

        “Smaller renovations or capital injections do fly under the radar – typical examples would be landscaping, a back deck, a new kitchen etc.”

        What percentage of the yearly index that would account for? 2% p.a.? (the same rate that is used for depreciation)?

  2. John November 2, 2012 at 4:32 pm #

    Probably just means it’s more likely due for a correction..

  3. SonP November 2, 2012 at 4:58 pm #

    Does the rpdata index accounts for renovations and maintenance, taxes, fees etc. ? Nothing like that when investing in shares.

    Also currently the ASX200 dividends are at around 4% and fully franked (equivalent to 6% depending on your tax rate). And that is pure returns there are no extra costs involved in owning shares.

    Lastly, you can use ETF funds to diversify your share portfolio easily and cheaply, which with property can’t be done. Some apartments on the Gold Coast (but also some in SA) are down 40% in a couple of years. so talking about investing in “property” does not reflect the real local investment that one is making.

    • Leigh November 9, 2012 at 4:12 pm #

      So may be the best way (reduced risk and unknown costs) to get exposure to property should be done through a listed REIT.

      • SonP November 12, 2012 at 11:55 am #

        Something like Centro maybe? Ops. If you know what you are doing and all the details of what’s included in the REIT… REITS assets may include office buildings, industrial parks, residential developments and shopping centres, which go beyond a residential property index.

  4. Adelaide Home Loan December 18, 2012 at 4:57 pm #

    All are he best points.The index attempts to control for capital injections by excluding any transactions where the attributes are seen to have changed between periods.

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