Property and Shares – Which is the Better Investment? Or Should You Own Both?

24.06.19 Wealth By Anthony Hourigan
property investing or stocks

Property as an asset class has its place in any portfolio. As Australians we tend to make the property weighting very high, usually by acquiring the family home then adding investment properties. There are many factors influencing this, and the purpose of this piece is to examine the investment merits.

Does property stack up as the fool-proof investment we grow up believing that it is? And how does it compare to other asset classes? Specifically, listed shares. This analysis aims to provide a more detailed assessment of the real price of each investment, including transaction fees and running costs. For the purpose of this research, I am going to keep it very Aussie-centric (apologies to the International readers), and before I go on, I will throw out a few disclaimers:

  1. This piece addresses the investment merits of property. This is very different to buying somewhere to live
  2. We look at averages in this piece, so there will always be exceptions
  3. The content should not be seen as a recommendation

Simple Analysis

For the first part of it, we can take a simplistic view of the last 25 years and assess what the return would have been on a house purchase made at the end of 1993. Assume back then, you purchased a house for the national median average, which in 1993 was $111,524. By 2018, that house would have had a value of $571,441. Roughly a 5 to 1 return over 25 years, or an annual rate of return of 6.8%. Had you have bought in Sydney, that house would be worth $696,100 in 2018 (average return of 7.6% p.a.) and Melbourne did better still with a value of $781,650 (average return of 8.1% p.a.) Every other capital city was below the national average. (Source: CoreLogic)

So, would this have been a good investment? On the face of it, sure – especially if you bought in Melbourne, where you returned 8.1% p.a. But here’s the thing about property investment which is often overlooked – what were your other input costs? We’ll look at that in some more detail later.

Before we get to that, let’s compare how the property purchase compared to putting money into the share market. Let’s assume you invested the same $111,524 at the end of 1993 in the All Ordinaries. By 2018, that investment would be worth $817,680 – a return of 9.6% p.a. including dividends. A good 1.5% p.a. better than Australia’s top performing city, Melbourne.

There are so many ‘ifs’, ‘buts’, ‘what ifs’ etc. to this very simplistic comparison it’s hard to know where to start. But these are the bare stats of a comparison of buying an average house in Australia vs a share portfolio generating market returns, and for the purpose of this analysis we’ll stick with it.

Comparison of investments in houses and the All Ordinaries index made 25 years ago


The point of diversification is to spread and reduce risk so that one particular investment won’t have too dramatic an impact on a portfolio’s overall performance. The share portfolio in the example above is a diversified portfolio invested in hundreds of businesses and several sectors across multiple geographies. An adverse event in one industry won’t greatly affect the portfolio. The house, on the other hand is on one street, in one town, in one state, in one country. It’s about as concentrated as you can get. A costly repair to the house, for example, is going to hurt returns that year.

The Real Purchase Price

Looking to the next 25 years, let’s assume we were to go through the same investment all over again, starting at year 2018. Compare the purchase of a house in Sydney, paying the median Sydney house price today ($1,026,638), and a diversified portfolio of the same value. We can’t predict with accuracy what either asset class will do over the next 25 years, so for now we will just look at the purchase price of each asset. That is, the total purchase price, as outlined below. We’ll assume we don’t engage the services of a buyer’s agent (which are becoming more commonplace, particularly in the capital cities) for the property purchase.

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