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How does property investment compare to shares?

Answer

Investing across different assets, like property and shares, 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 (5.3% a year for the 10 years to 30 November 20171)
  • the comfort of a visible, real investment
  • generally less volatile price changes compared to shares.
  • 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
  • depending on who holds the property, it may be subject to high rates of tax (stamp duty and capital gains tax) which weaken capital growth
  • 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 (6.2% a year for the 10 years to 19 December 20172) for Australian shares
  • low transaction costs
  • 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
  • a generally 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.

Things to consider

Whether you decide to invest in property or shares, there are some common considerations. Both property and share investment will provide potential for ongoing capital growth, discounts on capital gains tax for long-term investment and tax-effective income when negatively geared. But you’ll also need to think about the fluctuating interest rates (where a loan is required) and that returns can be unpredictable and value may decrease unexpectedly.

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 Past performance is not a reliable indicator of future performance. Source: AMP Capital, CoreLogic. Year on year to 30 November 2017.
2 Past performance is not a reliable indicator of future performance. Source: Bloomberg, S&P/ASX 200 Accumulation Index . Year on year to 19 December 2017.

Some other questions to consider

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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.

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