Why Investing in Property, Not Shares, Makes Sense Today
When you’re looking to build long-term wealth, one of the first questions that come to mind is what types of investment would generate the most wealth for me? And for Australians, that may mean a decision between investing in shares or in property. In Australia, it’s worth noting that while the share market may have had a record year pre-COVID-19, the market shift after has led to a decline in returns.
On the other hand, the Sydney property market has had its slowdown but is currently well on its way to recovery. In fact, data from Corelogic shows that property owners had an average 15.9% gain over the last five years.
Many Australians still opt for property investment, which is why Aussie banks will loan up to 95% of the value of a residential property compared with all other investment options.
In this article, we’ll do a top-down review of why many Australians are opting to buy property rather than shares.
Australian Share Market: The Downsides
Buying shares comes with a number of risks and it’s important to understand and be comfortable with them before investing. In the long run, many Australians opt to invest in property rather than shares because of higher returns, but what can also be gained from investing in the share market may outweigh the risk for some people.
Below are a few reasons why Australians are more hesitant to invest in the share market.
- It’s costly to transact. Investing in the share market amidst a volatile economy can be risky. You could end up losing everything you’ve invested if the market doesn’t perform as well as expected and your shares end up losing their value. When investing in shares, you need to think about how they might grow in value and what you can realistically gain. Expecting too much means you could end up investing more money than what it’s really worth and you end up with massive losses.
- Not great for short term gains. Reports show that investing in property can return 1.4% more when compared to shares. Unlike properties that are considered long-term investments that can offer positive returns over time, shares are considered short-term as it is based on market timings. This means you’ll need to be wary about timing the market, as buying low and selling high is critical. Market changes may also mean you’re exposed to more risk and bigger losses either way even in the short term.
- You’ll need to assess your appetite for risk. Before investing in shares, you need to accept their volatile nature. With today’s economic uncertainty, are you comfortable with share values changing constantly? You need to ask yourself how much you’re willing to risk and whether you’re comfortable with your investment portfolio increasing and decreasing in value all the time.
With COVID-19 still dramatically impacting the Australian economy, there are no guarantees. Shares are more likely to be impacted by market fluctuations at any time compared to a residential property in the short term. Before investing, you need to be wary about the strength of your returns and how much loss you’re willing to settle for.
- Not having ready access to your money when you need it. Another point you should consider is that given today’s fluctuating market, if you invest in shares amidst an environment where they can quickly lose their value, can you afford to not have access to your money whilst you wait for recovery?
Although selling your shares overnight can still earn you cash whereas selling your property can take much longer, you’ll reap higher returns from property investment in the long run.
- Many external events out of your control. One of the downsides to investing in shares is that there are many things that are out of your control such as the market crashing, or having your business go through disasters such as the ramifications of COVID-19. All these negative developments can impact share prices and the value of your portfolio.
Property Investment: The Upsides
Despite the current climate, the Australian property market has remained relatively stable. Although there have been significant changes, home values have remained constant throughout Australia.
Below are just a few reasons why many Australians still prefer to invest in property.
- Potential to reap constant income. Investing in property to rent gives you access to a passive income stream or a regular cash flow from rental income, which you can choose to reinvest especially in trying times. Australia’s growing population means that there will always be rental demand, particularly in the capital cities.
- Value can be added through renovations or just the passing of time. When you invest in property, your property value only increases with time which can amplify your wealth in the long run, giving you more room to explore future investments. Furthermore, any renovation work that is done on your property also increases its value. All of this can help you gain positive returns over time.
- You can use equity to buy a second property. When you invest in property, you can use your existing equity to purchase a second investment property to amplify your income stream. By using the equity in your current home, you can buy a second property without a need for a cash deposit.
- The property market shows greater signs of stability than the stock market. Compared to shares in the stock market, another added advantage to owning a property is that it is tangible. You get greater control and can manage your property investment accordingly.
But on top of its upsides, it’s important to note that owning a property has its share of challenges. On top of maintenance, other property expenses, and mortgage repayments, selling it may take longer. Investing in property is a choice that you’ll need to make according to your needs and whether or not it fits your current circumstances.
Smart Property Investment with Shore Financial
Whether you’re thinking about investing in property or shares to build your wealth, it is crucial to factor in the current state of the market and how this will affect returns both in the short and long term. To be successful, it’s important to consider investment timeframes and how comfortable you are with risk for both options.
If you’re planning to invest in the Sydney property market, Shore Financial can offer you the best strategic advice to ensure your investment is aligned with your current goals. Making informed decisions can help you reap positive results amidst the current market challenges.
Get in touch with Shore Financial today.