Property versus Shares

 Despite Australians being among the biggest share investors in the world, I know that the thought of putting your money into the market scares the pants off many of you.


“I’m going to sell my apartment”, announced my girlfriend.

She may as well have been asking me to pass the butter, she was so cool, calm and collected – like a female Donald Trump (but with much, much more hair).

Her rationale?

She’d bought the apartment as a young single woman a few years ago. Thanks to the property boom she’ll trouser close to a hundred grand, and she hated the hassle of being a landlord.

Besides, she now lives in sin with me and my golden retriever – and by all accounts we’re pretty decent landlords.

Simple right?

Enter the parental peanut gallery: “Why would you want to sell – there’s nothing safer than bricks and mortar!” And: “You do know that Alan Kohler was on the ABC news last night saying that property had done better than shares!”

I knew where this was going: I was the ‘big bad shares guy’ who had convinced this smart, independent woman to sell her hard-won asset, and in a slowing market no less. Though it wasn’t true, I was chuffed that both sets of parents believed I held such sway over my girlfriend.

Shares vs Property

The shares vs property debate is one of those mortal battles – Ford vs Holden, Melbourne vs Sydney, Kochie vs Karl. Each has its diehards with their own set of statistics that prove that one is a better bet than the other.

Both arguments are pushed by vested interests: money managers rake in billions a year by taking a tiny slither of your investment and making it theirs (via asset-based fees), and there’s an entire industry of agents, banks, politicians and retailers that feed off a strong property market.

Share spruikers maintain that owning a business is more profitable than owning the shop (which explains why most banks don’t own the physical branches). Property pushers promote everyday millionaire landlords who’ve gotten rich by simply buying and holding homes.

But before we roll up your sleeves for some financial fisticuffs, let’s take a look at a report from ANZ Bank this week that pours cold water on both sides of the battle.

Property Wins

The ANZ report, Asset Returns: Past, Present and Future found that the highest returns over the past 24 years came from owning your own home.

The report suggested that on average owning a home generated an annual return of 12 per cent, even with costs and taxes factored in. Homes trumped both investment properties at 9.6 per cent and shares at 8.9 per cent.

No surprises there – I’ve always argued that owning your own home is the ultimate investment – but I wasn’t so sure about their calculations, especially when it comes to the tax breaks investments receive. So I called up one of the authors of the report, the head of property research for ANZ, Paul Braddick, for a chat.

He was refreshingly frank.

Barefoot: “Your report found that owning your own home comes out in front financially. Is this because you can sell it without being hit with capital gains tax?”

Braddick: “Well, that and the deregulation of the finance industry, which has facilitated a growth in prices.”

Barefoot: “Err … is that banker-speak for ‘over the last 20 years we’ve allowed homeowners to borrow a lot more dough?’”

Braddick: “Well, yes.”

What has fuelled housing priced over the last 20-plus years is a halving of interest rates – from around 14 per cent to 7 per cent. So while the cost of debt was falling, the bankers’ enthusiasm to lend increased.

The big winners were the Baby Boomers, who elbowed young first homebuyers out of the way at auctions, using the equity in their homes like an ATM machine. But there’s only one problem – for many Boomers the machine’s starting to run out of cash.

Shares Win

So while the ANZ report sung the praises of property over the last two decades, it’s not so hopeful for the coming decade. In fact it forecasts that shares are going to be the asset class to invest in over the next 10 years.

Despite Australians being among the biggest share investors in the world, I know that the thought of putting your money into the market scares the pants off many of you.

Each night when you get off work (and often in your lunch break) you can see exactly how much your share portfolio is worth. Sometimes that’s a pleasant experience – though not lately.

But it’s really no different than if you auctioned your home every single day – you’d be amazed at the differing daily prices, but wouldn’t be too fussed if you weren’t planning on selling that day.

Having easy access to your money is a good thing: you can’t sell off your second bedroom if you want to go to Bali at Christmas, but with shares you can – plus it’ll cost you the price of a pizza (in brokerage fees) and the dough will be in your bank account within a few days.

But what about the tax benefits of property?

While negative gearing is a socially acceptable way of saying ‘I’m losing money’, the tax breaks for both property and shares are, when all is said and done, equally generous, and for that matter equally ridiculous. (How we could have two government tax reviews yet still favour borrowing and speculating over getting out of bed and working is a testament to the power of politics.)

You Win

The ANZ report reinforces that owning your own home is a bloody good idea (so long as your can comfortably afford it and you aggressively work on paying down your mortgage).

But it also shows that it pays not to have all your eggs in the one basket. Besides sprucing up your super, it’s a smart strategy to start a small share portfolio – if for no other reason than to get your head around being a part owner of a successful business.

Or at least that’s what I’m telling my newly cashed up girlfriend.

Tread Your Own Path!

Now Read: How To Start Investing In Shares