Property versus shares – where's the best investment?

Indeed, against a backdrop of high house prices and tightening yields in Australia’s two largest capital cities, as well as record-low term deposit rates, the local share market may still represent good buying opportunities, according to a range of experts Smart Property Investment spoke to.

Ben Kingsley, CEO of Empower Wealth, explained that while there is precedent for Australian investors capitalising on property in the wake of a share market downturn, it doesn't make it the ideal strategy in today’s market.

“Traditionally when you see a correction in the share market what you see is a flight to safety; so in the ’87 crash we saw the property market perform quite well afterwards, where people were looking for the safety of bricks and mortar. This time around you've got very low chances of good returns on term deposits and people are looking for alternatives for their money, and property is a good long-term alternative,” he said.

“I would say if you were a value investor, whether it be shares or property, it’s best to invest for the long term and the best time is when you can afford to get into the market today and into the future. I think speculation in either shares or property is not an investment strategy, it’s a speculation strategy – it’s guess work.”

Instead, investors need to research each opportunity thoroughly, be it property or shares.

“I wouldn’t say it’s an automatic decision, there’s opportunities in the share market just as there are opportunities in the property market, I wouldn’t take a blanket approach and say: ‘Rightio, that’s it, there’s volatility in the share market I should move all my eggs into the property basket.’ I think that’s an immature approach to investing,” Mr Kingsley said.

Christopher Bates, independent financial planner and founding director of Canopy Private, believes that rather than turning their back on shares, investors with well-performing properties in Sydney and Melbourne should be seeing the share market downturn as an opportunity to secure realistically priced stocks.

“Using equity within your property to look at further investing, now’s actually not a bad time to start drip feeding money into the stock market. I would see the stock market falling as an opportunity now to use the equity you've built in the Sydney and Melbourne property market to start to buy in at much more realistic levels,” Mr Bates said.

He explained that the local share market was previously overvalued, and that the recent downturn represents a long overdue correction.

“The share market was already overvalued and people who were buying in the share market three or four months ago should have been aware that the market was overvalued and so the short-term performance of the share market has been, it’s already had those negative 18 per cent returns. So selling after that point […] you’ve already kind of missed the boat. You potentially should have been selling in April, so it’s now come back to a much more realistic level. Whether it goes lower from here in the short term, yes, but we’ve already taken a lot of the steam out of the share market with what’s happened in the short term,” he said.

It’s a sentiment echoed by David Bassanese, chief economist at BetaShares Capital.

“If the decision was between Sydney property and equity prices, I would probably still favour equity prices over a two to three-year view, because I think Sydney property prices are getting close to a peak and the equity market is likely to rebound. Having said that, there’s probably better value in some of the other markets outside of Sydney, which I think given the likelihood of continued low yields value in there looks pretty attractive with rental yields."

Indeed, investing in shares may be the better option for many investors, if the overheated Sydney market is anything to go by, according to Mr Bassanese.

“Look, I think it’s always good to be diversified, that’s my first point. If you’re talking equity versus property, it’s never good to have all your eggs in one basket. It’s good to have a bit of both, so if you have money to put in the market, I’d say the areas outside of Sydney would be a bit more favourable but I wouldn’t take the correction we’re seeing in the equity markets as a sign that we’re in for a sustained bear market; I think there’s probably a little more downside over the next few months, but I see equity markets recovering thereafter. If you’re thinking about investing in the equity market, I would probably still favour that over property overall,” he said.

Natalie Copeland, client adviser at Strategy One, said the recent downturn serves as a timely reminder for investors to ensure their share portfolio is diversified, stating that opportunities exist to capitalise on current conditions.

“Volatility at this time of the year, around October, is quite normal. However, there’s been volatility for a lot longer than just this time of the year and obviously there’s a number of things at play," she said.

“When I look at investing money for clients, [...] I try and make sure that they are invested across the range of different types of investments and some of those are investments that can actually perform very well in periods of volatility and aren’t necessarily correlated to the underlying ASX 200 share market performance. So it’s in times like this that diversification is pretty important and you can get that through investing in a range of different markets and managed fund opportunities, whereas property is a lot more singular in nature just because it’s a large lumpy asset,” she added.

Should investors be prioritising property over shares? Have your say here. 

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