How does property investment compare to shares?

Answer

Many Australians are choosing to invest in property along with other asset classes1. Investing across different assets spreads investment risk by ensuring your eggs aren’t all in the same basket.

There can be advantages and disadvantages to investing in property—the table below compares property investment with shares.

Residential property
Advantages Disadvantages
  • generally moderate long-term returns (5.1% per annum for the 10 years to 31 December 20132)
  • the potential for ongoing capital growth
  • the security of a visible, real investment
  • generally less volatile price changes
  • negative gearing potential which may provide tax advantages
  • discounts on capital gains tax for investments held longer than 12 months.
  • very high transaction costs on entry and exit
  • significant capital or a home loan is required
  • potentially high ongoing costs which may include loan-interest charges, strata fees, council rates, utilities charges and insurance
  • high rates of tax (stamp duty and capital gains tax) which weaken capital growth
  • fluctuating interest rates
  • illiquid: cannot be quickly sold
  • no income when the property is vacant
  • no income may be earned (the property may be empty) while improvements are made to increase value
  • risks can arise from property market movements, suburb and general economic price trends
  • concentrated investment (harder to diversify).
Shares

Advantages

Disadvantages
  • generally attractive long-term returns (9.7% a year for the 10 years to 31 December 20133) for Australian shares
  • the potential for ongoing capital growth
  • low transaction costs
  • tax-effective income when negatively geared
  • discounts on capital gains tax for long-term investment
  • able to gain exposure to overseas investment more easily
  • negative gearing potential which may provide tax advantages
  • greater liquidity—shares can be quickly sold if required, although a quick sale can mean a loss of value
  • easier to diversify.

 

  • a less physical and more volatile asset
  • returns can be unpredictable and value may decrease unexpectedly
  • a less-understood asset class
  • requires management expertise and fees may apply
  • risks can arise from industry and company risk factors and changes in management, industry and/or company
  • economic trends can pose risks to return levels
  • individual country risks can affect investment performance and return levels
  • can incur capital gains tax and tax on income produced.

Comparing different types of investments can help you make the right choice for you. Speak with a financial adviser about the types of investment that can help you reach your goals. 

Notes

1 "Where to invest your money", news.com.au
2 Past performance is not a reliable indicator of future performance. Source: Bloomberg, Real Estate Institute of Australia Indices, AMP Capital, RP Data Property Price Index. Year to date to December 2013
3 Past performance is not a reliable indicator of future performance. Source: Bloomberg, Real Estate Institute of Australia, AMP Capital, S&P/ASX 200 Accumulation Index . Year to date to December 2013.

 

Important information

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It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions before deciding what’s right for you. This information hasn’t taken your circumstances into account.

This information is provided by AMP Life Limited. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice.