Property or Shares; which is Best?

“With property, you don’t wake up in the morning to find that a bedroom has fallen off overnight”. Peter Vickerson, Managing Director of Freedom Road Investment Properties.

This is often a hotly debated topic, but I am firmly in the “Property is Best” camp. Here’s why I believe that property outshines shares every time.

Any Good Investment should meet the following criteria:

n         Good Returns

n         Low Risk

n         Gearing

n         Social Responsibility

n         Wealth Creation

Good Returns

Over the last twenty years median priced residential property in the eastern seaboard capitals has consistently outperformed shares, especially when the last two years of the Global Financial Crisis are taken into account. Australian property has held up remarkably well during this troubled time.

Low risk

Can your family afford the wild swings of the share market? Most share portfolios are worth substantially less than they were a few years ago. During the crash many investors would wake up to find that they had lost 10% of their net worth overnight. With property, you don’t wake up in the morning to find that a bedroom has fallen off overnight!

Unlike the UK and US property markets which are in oversupply, Australia has a critical shortage of housing.

The power of Gearing

Gearing

Gearing magnifies the returns and makes investing affordable. In Australia, at the time of writing, you can borrow up to 95% on a single security, while shares can be funded up to around 50%. In addition, as of today (14 Sept 2009) Australia’s largest lender has indicated that they will no longer accept projected income from shares in assessing an application for a margin loan. With margin loans, there is always the risk of margin calls. Again with property, you don’t wake up in the morning to find that the bank has sold off 40% of the house.

Socially responsible

Property is an investment that You can feel good about

n         A new house project provides employment for trades people during construction.

n         Ongoing property management and maintenance services provide ongoing employment opportunities.

n         Rental properties are in short supply in many areas around the country – families need housing.

n         When you buy shares the only one who benefits is the stockbroker.

Wealth creation

Because property can be more highly leveraged than shares, it is self evident that the return on a $400, 000 property with borrowings of 95% is going to give almost twice the return of a $400,000 share portfolio with borrowings of 50%,(assuming a 10% growth in both). In addition, the risk is substantially less because median priced residential property does not undergo the wild swings that the share market does.

What is the best property to invest in?

As the owner of a property investment business, I believe that for the average investor, brand new median priced house and land packages located in south east Queensland make an excellent investment. My reasons are:

n         There are very significant tax advantages for brand new properties.

n         In Queensland stamp duty for a house and land package is about half of what it would be for an established home.

n         Very little maintenance for the first five years.

n         Renters will always prefer a new home over an old one.

n         Socially responsible investment.

n         In general, houses appreciate faster than apartments.

n         There are no body corporate fees for houses.