Property or shares: where should you invest?

Property or shares: where should you invest?

When it comes to investing their hard-earned cash, Australians have always been partial to bricks and mortar and consistently rising property prices have guaranteed a solid investment return. As an alternative investment strategy, the Australian share market has also delivered results for investors, with shares reaching a five-year high last month.

When it comes down to the crunch, however, where should you invest your money? Property or shares?

How do the two compare?

In a 2013 analysis by the Australian Securities Exchange (ASX) and Russell Investments, titled Long-term Investing Report, shares came out on top – outperforming residential investment property over both a 10-year and 20-year time period.

The analysis found that after accounting for taxation and costs, Australian shares returned 8.9 percent capital growth in the 10 years to December 2012, while residential investment property returned 6.5 percent. Over a 20-year time period, the gap between shares and property was almost non-existent, with shares returning 9.8 percent growth and property returning 9.5 percent.

“In the long term, both asset classes – property and shares – perform similarly,” said Steve Crawford, owner of Experience Wealth Advice and Victorian director of the Association of Financial Advisers.

Which option is right for you?

The first step to choosing the best investment option for you is to identify your goal, according to Crawford, and ask yourself questions such as: are you motivated by a financial or lifestyle goal? Do you want an asset that increases in value or provides an income, or does both? What is your timeframe?

“If you want to grow your income in a shorter timeframe, property takes longer to provide a return,” Crawford said. “If your goal is to slowly build an asset that provides you with extra income you don’t have to work for, shares win the battle every time. 

“If you are putting your money into shares, you should go into it with the view that you’re not going to touch it for five to 10 years to mitigate any volatility in the share market,” he added.

If you don’t have a sizeable sum for a deposit on a property, the share market may be more accessible than the property market. You can start building a share portfolio with a relatively small sum – as little as $5000 or $10,000 can get you well on your way and deliver regular income in the form of dividends.

Buying property can also entail hefty stamp duty, which adds to the cost of entering the property market. Stamp duty rates vary in each state, but as an example a $600,000 property in NSW may incur $22,490 in stamp duty and in Northern Territory, the stamp duty the same value property would be $29,700.

Building equity

The advantage of property over shares is that you can use the equity you build in property to borrow against it, according to Crawford.

“Stamp duty can be prohibitive but the trade-off is you can borrow against property in the future. I’ve had clients who bought an investment property first, then used that equity to buy their forever home,” he said.

In conclusion, Crawford said there is “no investment silver bullet”. Where you choose to invest your money comes down to your goals and circumstances. And a lot of research and shopping around.

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Learn more about home loans

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

What is stamp duty?

Stamp duty is the tax that must be paid when purchasing a property in Australia.

It is calculated by the state government based on the selling price of the property. These charges may differ for first homebuyers. You can calculate the stamp duty for your property using our stamp duty calculator.

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.

What is an investment loan?

An investment loan is a home loan that is taken out to purchase a property purely for investment purposes. This means that the purchaser will not be living in the property but will instead rent it out or simply retain it for purposes of capital growth.

What is equity? How can I use equity in my home loan?

Equity refers to the difference between what your property is worth and how much you owe on it. Essentially, it is the amount you have repaid on your home loan to date, although if your property has gone up in value it can sometimes be a lot more.

You can use the equity in your home loan to finance renovations on your existing property or as a deposit on an investment property. It can also be accessed for other investment opportunities or smaller purchases, such as a car or holiday, using a redraw facility.

Once you are over 65 you can even use the equity in your home loan as a source of income by taking out a reverse mortgage. This will let you access the equity in your loan in the form of regular payments which will be paid back to the bank following your death by selling your property. But like all financial products, it’s best to seek professional advice before you sign on the dotted line.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

What is appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

What does pre-approval' mean?

Pre-approval for a home loan is an agreement between you and your lender that, subject to certain conditions, you will be able to borrow a set amount when you find the property you want to buy. This approach is useful if you are in the early stages of surveying the property market and need to know how much money you can spend to help guide your search.

It is also useful when you are heading into an auction and want to be able to bid with confidence. Once you have found the property you want to buy you will need to receive formal approval from your bank.

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.

What is a loan-to-value ratio (LVR)?

A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage.   Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more.   LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment. 


While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.