Investing in shares vs. property: The advantages and disadvantages

By Cutcher & Neale Accounting and Financial Services - August 30, 2021

Shares vs Property – it’s a debate that has been raging since Australia’s first stock exchange opened in 1861, and it largely depends on who you talk to regarding which is the better investment.

Rather than add fuel to that fire we’ll just point out the advantages and disadvantages and let you make up your own mind.

The most obvious benefit to property is that it’s a tangible asset you can see, touch and live in, whereas shares often just feel like numbers on a computer screen. Although that’s not all, property is less influenced by daily headlines or morning talk shows.

It can’t go into insolvency, banks will readily lend against it and importantly, because we’re not making more land, population growth will continue to ensure there is demand for property.

The biggest barrier to investing in property is the cost. According to the Australian Bureau of Statistics, the average price of a residential dwelling in NSW is $1,010,000, and according to the CoreLogic Hedonic Home Value Index and Market Trends Report, the median house price in the Sydney area is $1,160,000.

Furthermore, the ‘transaction costs’ when buying a property shouldn’t be forgotten. Stamp duty on the above median house in Sydney would cost approximately $48,300, legal fees would be around $2,000 and, when you sell the property, you could expect to pay a real estate agent commission of around 2%, or $23,200, (assuming no change in price). All up, that’s approximately $73,500 in fees and commissions. Along the way you’ll be required to pay council rates, water access fees, insurance, real estate management costs and probably some general upkeep as well.

With shares, the largest benefit is divisibility – generally speaking, you can buy or sell a parcel of shares for a little as $500, but you can’t buy or sell $500 worth of a property.

The other main benefits are:

  • the smaller minimum investment required to invest in shares means you can diversify the risk so you don’t have to put all your eggs in one basket,
  • you don’t have to worry about careless tenants,
  • you can easily gain exposure to countries other than Australia,
  • transaction costs are low and there are no ongoing costs,
  • if you buy Australian companies you may benefit from franking credits.

The biggest risk when buying shares is the risk of total capital loss, or the company’s bankruptcy. Further, whilst many companies pay dividends from their profits, the amount and frequency of dividends is at management’s discretion, and as a shareholder, you do not have direct control over how the company is run, so it is difficult to impact your company’s decisions.

There is no definitive answer on which investment is better. At a certain stage in your life, shares may prove more valuable and a sound alternative, but at another stage, property may tick all the boxes. Or maybe your portfolio will accommodate a mix of both.

It’s a case of horses for courses, depending on your stage of life, personal circumstances and attitude to investing.

If you’d like to have a chat about what’s right for you get in touch with our Wealth Management team.


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