Property beats shares

Here’s an article I just saw on nwes.com.au.

It just reinforces just what many of us believe here.

No doubt there are a few shares that may have a much better return on capital growth than property in the short term when you get into trading on a technical basis (which I will be starting shortly). But the risk of losing on a share trade is a lot higher than on a property deal where you have done your due diligence.

Here’s the article:

Property beats shares
By Matthew Horan
November 30, 2003

SYDNEY property has provided almost twice as good a return as share investments over the past 20 years, a report has found.

Share investments have returned a little more than six per cent per annum since 1980, based on the All Ordinaries index of top Australian companies, whereas Sydney houses have returned more than 12 per cent a year.

The study, by property monitor Residex, also shows share investments had more than three times the risk of property.

But economists warn the imbalance between shares and property should disappear by the middle of next year as housing prices flatten and the share market continues to improve.

CommSec senior analyst Craig James says the gap is worrying. “Over time, property returns have tracked share returns fairly tightly,” James says.

“It’s a fairly significant imbalance, and our view is that something’s got to give.

“We’re expecting share prices to rise further and the All Ordinaries to hit around 3450 (an eight per cent rise) by the middle of next year.

“The 20 per cent-plus growth we’ve seen in housing can’t continue. We think it will ease to five per cent or even lower.”

The Residex report compares returns with risk. Higher-risk investments are more volatile and can either provide exceptional returns or be so bad as to wipe out part of the asset.

Treasury notes are usually low-risk, low-return, while higher-risk investments have the potential for much higher returns.

“Perhaps the most interesting thing is … that houses shown to carry lower levels of risk also presented the best total returns,” the report says.

“This is counter to normal yield rules. Normally, the higher the return, the higher the risk.”

Two weeks ago, 2GB announcer Chris Smith sold his three-bedroom Birchgrove terrace for $1.3 million.

“I paid $420,000 for it in 1997, split the block in half and built on half of it for $450,000,” he said.

“So really it cost me $660,000 and I got $1.3 million. You can’t get a share that operates like that.”

Mr Smith and his wife, Ally, have sold out of most of their share portfolio.

“I just don’t see any value in them any more,” he says.

“We bought a one-bedroom property on the Gold Coast for $205,000 18 months ago.

“We’ve just put it on the market for $300,000. For me, shares and superannuation are something I can’t see getting that sort of return from.”

The Residex report says the property boom has been helped along by superannuation funds’ poor investments.

“In recent years, our collective view about housing being a safe investment haven has been reinforced by the failure of our superannuation fund managers to provide us with acceptable returns,” it says.

The report shows that returns from Sydney home units, normally bought as investment properties, are declining.

The Sunday Telegraph

Cheers,

David Paxton
“You Only Live Twice”