Property versus Shares: which is a better investment in 2024?
With the real estate market gaining traction once again, which is your best option this year?
4 min
For those on the hunt to find the perfect investment opportunity in 2024, two of the main sources of potential investment income to consider are shares, and the property market. The latter, currently, is gaining momentum again in Australia, coupled with stabilising interest rates, and inflation on a downward trend compared to this time last year.
On the other hand, if entering the property market is out of the question right now and you’d rather start small, investing in shares is a great alternative to consider. Naturally, there are always going to be dangers and risks associated with any type of investment, be it property or shares, but with some research and guidance, you’ll be better suited to make a decision.
“One thing all investors should do in the beginning is understand the asset class they want to invest in. If your personal interest is in building a property portfolio, then researching property investing and understanding the ins and outs is key,” David Pelligra, director & mortgage broker at Wealth Point Lending, says.
“The same goes for shares. If you are someone who enjoys the nuances of the share market and the inner workings of a publicly listed company, then again, researching that particular part of the market is important. My biggest piece of advice when investing is to speak with professionals that understand the market you are wanting to invest into.”
So, in 2024, which is your best option for starting your investing journey? What are the pros and cons of each? These are the questions you must ask before investing your money in either sector.
What are the pros of investing in shares?
The idea of investing in shares as a means for potentially earning high returns has long enticed those looking to increase their capital growth over a long period of time. Shares also present the opportunity for ownership in companies with shareholders enjoying particular voting rights and dividend potential. Those who invest in shares often have a degree of flexibility and control, which is a comfort when investing large sums of money. For example, should you wish to access your funds at any point in time, often you can do so instantaneously. This cannot be done with property.
“Shares are a liquid asset, meaning you can sell parts or all of your portfolio, allowing for quick access to cash,” Pelligra says.
When investing in shares, individuals — novice or otherwise — should consider adding blue chip shares to their portfolio. These are shares issued by a large corporation, often one of notoriety, with an excellent reputation and experience in market capitalisation. Blue chip shares are often safe and risk-adverse, however any financial gain is usually in the long-term.
What are the cons of investing in shares?
As Warren Buffett once said, “the first rule of an investment is don’t lose (money). And the second rule of an investment is don’t forget the first rule. And that’s all the rules there are.”
Despite their advantages, it’s essential to remember that investing in shares also carries with it risks, including the potential for the loss of capital. Price volatility is also another important factor to consider — where shares prices rise and fall rapidly over the space of days or months. Those who invest in high risk shares — although seeking higher returns in a short amount of time — have to be prepared that they could lose a large sum of money depending on which way the market swings.
Naturally, when endeavouring to invest in shares, it’s important to conduct thorough research. This includes seeking advice from financial professionals before making large investment decisions.
What are the pros of investing in property?
Somewhat a no-brainer, investing in property offers a number of benefits, from capital growth (should the property rise in value over time), through to reduced volatility (historically, property prices only go up). If you’re planning on owning a property as an investment—and plan on leasing it—you can generate continual cash flow to cover your property expenses. Unlike shares, investing in property is a physical endeavour, in that it’s something people can see and touch, which is always favourable.
For those that are looking long-term and don’t necessarily need the instant cash flow (yield) renting a property can provide, investing in property for capital gain is also a great way to increase your finances considerably. Depending on where you buy, residential properties have the potential to rise in value in a relatively short period of time, and as a result, can offer owners a significant gain should they look to divest at the right time.
“Investing comes with an inherent risk, but the key is to look at past performance. Property, for example, has consistently performed in Australia for the last 30 years, so you could feel quite safe if you were investing,” says Pelligra.
“Property is also a physical asset that you can either live in, or earn an income from if you are to rent it out.”
What are the cons of investing in property?
There are a number of potential pitfalls that come with investing in property. No one can predict where the property market is going to go, whether interest rates will rise or fall, and if you plan on renting your property, whether your tenants do the right thing in the way of upkeep, making regular payments, and so forth. Properties can also have additional costs attached, such as maintenance, repairs and upgrades, as well as insurance. For those looking to gain capital on an investment property they don’t live in, you also need to consider the capital gains tax, which naturally reduces savings and investment incentives.
Of course, there are ways of mitigating the risks of investing in property by doing thorough research, and speaking to the professionals who can assist you on your journey.
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All commentary made is considered general advice. It is recommended to seek financial advice from a professional before making decisions associated with investing.
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The housing crisis could be addressed without the need for more dwellings, the RBA assistant governor says
3 min
The Reserve Bank assistant governor says how we live now is contributing to the housing shortage.
The National Housing Accord announced by the Albanese Government aims to build 1.2 million new well located homes over the next five years, starting from 1 July. The Accord is an agreement between the Federal Government and the states and territories to work together to raise the supply of homes. It begins with $3.5 billion in federal funding and the states and territories undertaking expedited zoning, planning and land releases to facilitate new building.
All of this is happening amid a housing crisis that has seen rents and home values both skyrocket by more than 40 percent since August 2020, according to CoreLogic data. Demand for social housing is also high, while post pandemic immigration has put further pressure on the market, and dwelling approvals per capita are at decade-lows amid high interest rates and higher materials and labour costs.
But there’s another way to fix it, says RBA assistant governor Sarah Hunter. We could just go back to living like we did in the 1980s. Back then, households were larger in size. That is, the number of people per household was higher at 2.8 people per home compared to 2.5 now. That may not sound like much of a difference, but Ms Hunter says if we reverted to this we’d need 1.2 million fewer homes right now.
In a speech last week on housing market cycles and fundamentals, Ms Hunter said that underlying demand for housing – be it rental or ownership – is determined by the size of our population, currently 27 million, and the average number of people living in each of our 11 million homes.
Ms Hunter said Australia typically has faster population growth than other advanced countries, driven by net overseas migration. In FY23, new overseas migration totalled more than half a million people. She also said the size of Australian households has been trending lower over the long term, mainly due to demographic factors. These include an ageing population, which means we have more elderly Australians living alone or in couple-only households; as well as a falling birth rate, which is reducing the average family size.
While the demographic trends that drive housing demand tend to occur slowly, the pandemic sped them up. “During the pandemic, there was a shift in preferences towards more physical living space per person ... This was particularly the case for people who shared a home with non-family members, such as young people living in a flat share,” Ms Hunter said. “This group shrank as a proportion of households, while the share living with their partner increased – as a result, the average household size declined.”
She added: “The shift to working from home has also reinforced this change. While some people have returned to their workplace full time, there has been an increase in the proportion of people working from home – for many, a home office space is now highly desirable. This suggests that the recent falls in the average number of people per home will be at least partially permanent.”
When housing demand rises, supply usually responds through new building activity. But the time this takes can vary, depending on rental and housing prices, underlying construction costs and the time required to design, approve and build. In the meantime, property prices and rents adjust in line with the extent of the demand and supply imbalance.
“The pandemic period – and its aftermath – stands out as a particularly sharp cycle,” Ms Hunter said. Growth in demand for new dwellings slowed rapidly in 2020 before rebounding strongly, partly due to the HomeBuilder program. But supply did not respond normally, with completions trending lower over the past five years due to a “perfect storm” of challenges in the construction sector.
They began with COVID-related supply chain disruptions that made it difficult to source materials, fixtures and fittings. Materials and labour costs went up, and a combination of shipping delays and labour shortages significantly extended building timelines. Today, supply chains have normalised but costs remain nearly 40% higher than in 2019 and the pipeline of new builds is clogged.
Additionally, major new projects are typically funded by debt, so higher interest rates are also reducing the viability of new builds. Many developers have delayed projects because of higher costs relative to anticipated returns. Meriton founder Harry Triguboff recently told The Australian that government and council approvals take too long and “it is harder to sell apartments now than ever before” due to high interest rates and fewer Chinese buyers.
Ms Hunter said easing zoning and planning restrictions and streamlining approval processes could reduce costs and lift supply but “it will not be a quick fix”. She concluded: “… upward pressure on rents and prices will remain until new supply comes online”.
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Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.
