Summary
- The property vs shares debate comes down to leverage and control versus liquidity and diversification, not a single "right" answer.
- Australian residential property has benefited from strong bank lending, population growth and favourable tax treatment of the family home.
- Australian shares, measured by the All Ordinaries Accumulation Index, have returned around 10.8% per annum (including reinvested dividends) since the index began in 1979.
- Property's past gains were supported by falling interest rates and rising household incomes, tailwinds that may not repeat in the same way going forward.
- The right mix of property and shares depends on your time horizon, cash reserves, tax position, borrowing capacity and tolerance for risk.
Should you build wealth through property or shares? It's one of the most common questions Australian investors ask, and there's rarely a simple answer. Morgans recently hosted a lively debate between property and equities specialists to unpack the arguments on both sides. This article summarises the key points raised, backs them up with the relevant data, and outlines the factors worth weighing before you decide where your next dollar should go.
The case for property
Property has long been considered one of the safest and most familiar assets for Australian investors, and the debate's property team put forward several reasons why.
Banks are comfortable lending against property
Lenders view residential property as a reliable form of security. That comfort gives investors access to leverage: a relatively small deposit can control a much larger asset. When the property grows in value, the return is calculated on the full asset, not just the deposit, which can significantly boost gains during periods of rising prices.
Owners can actively add value
Unlike shares, where investors are largely passengers, property owners can renovate, extend, subdivide or redevelop to create value directly. This hands-on control is a genuine point of difference for people who want an active role in growing their investment.
Population growth and limited supply
Australia's population continues to grow faster than new housing supply, particularly in well-located areas close to schools, transport and employment. Basic supply and demand suggests this dynamic will keep supporting property values over time, especially as construction productivity has struggled to keep pace with demand.
Tax treatment of the family home
A principal place of residence is exempt from capital gains tax, and many Australians can borrow against their home to fund further investment. This tax treatment remains one of property's most valuable, and most underappreciated, features.
The case for shares
Morgan's Stockbroker and Financial Planner, Ken Howard (AR: 000259290) countered with a different lens: rather than focusing on the asset you can see and touch, Ken argued true safety comes from the underlying cash flow of a productive business.
Shares are more accessible
Buying property requires a substantial deposit plus stamp duty and legal costs. Shares can be purchased with a few hundred dollars, making the share market far more accessible to younger investors and those without a large lump sum to invest.
Liquidity and flexibility
Shares can be bought and sold quickly, whereas selling a property can take weeks or months. That liquidity gives investors the flexibility to adjust their strategy as life circumstances change, without being locked into a long-term debt commitment.
The power of compounding
Reinvested dividends and rising share prices can compound over time, turning a series of modest annual gains into significant long-term growth. This compounding effect, often called one of the most powerful forces in investing, works quietly in the background over decades.
Diversification and exposure to growth
A share portfolio can span multiple industries, sectors and even countries, spreading risk in a way that a single property cannot. It also gives investors direct exposure to the businesses driving innovation and productivity gains across the economy.
Property vs shares: at a glance
What the numbers actually show
Both sides of the debate relied on historical data, and it's worth understanding what that data does and doesn't tell us.
Property's strong run over the past few decades was helped by a series of tailwinds: mortgage rates fell from around 17% in 1990 to roughly 3.5% in 2021, and most households moved from a single income to two incomes, both of which expanded borrowing capacity and pushed prices higher. Those particular tailwinds are unlikely to repeat in the same way, since interest rates have limited room to fall further from here and dual-income households are now the norm rather than the exception.
Shares, meanwhile, don't rely on falling interest rates to generate a return. The return comes from the underlying businesses growing profits, paying dividends and reinvesting in innovation. That said, shares can still be highly volatile in the short term, and investor behaviour, particularly the temptation to sell during a downturn, is one of the biggest risks to long-term share returns.
How to decide: property, shares, or both
Rather than treating this as a binary choice, most investors are better served by thinking through the following:
- Time horizon – longer horizons generally favour growth assets like shares and property, while shorter horizons call for more caution and liquidity.
- Cash reserves – holding adequate cash reduces the risk of being forced to sell an asset at the wrong time.
- Tax position – your marginal tax rate, and whether you're investing personally, through a trust, company or superannuation, changes the after-tax outcome of each asset class.
- Borrowing capacity and risk tolerance – leverage can boost returns, but it cuts both ways during downturns.
- Liquidity needs – if you may need to access funds at short notice, shares generally offer more flexibility than property.
A diversified strategy that combines both asset classes, sized appropriately to your goals, will usually serve most investors better than betting everything on a single asset.
Frequently asked questions
Is property or shares a better investment in Australia?
There's no single right answer in the property vs shares debate. Property offers leverage, control and valuable tax treatment on the family home, while shares offer liquidity, diversification and lower entry costs. The better choice depends on your individual goals, time horizon and risk tolerance.
What has historically returned more, property or shares?
Australian shares, measured by the All Ordinaries Accumulation Index, have returned around 10.8% per annum since 1979, including reinvested dividends. Residential property has averaged around 7% per annum over the past 20 years. Past performance is not a reliable indicator of future returns for either asset class.
Can I invest in both property and shares?
Yes. Many Australian investors hold both asset classes as part of a diversified portfolio, using property for stability and leverage and shares for liquidity and diversification. A Morgans adviser can help you assess the right mix for your circumstances.
Is it riskier to invest in shares than property?
Shares can be more volatile day to day because prices are visible and can move quickly. Property is less liquid, which can mask short-term price movements, but that doesn't mean it carries no risk. Both asset classes carry risk that should be assessed against your own financial position.
How much do I need to start investing in shares versus property?
Shares can be purchased with a relatively small amount of capital, while property typically requires a deposit plus stamp duty and legal costs, often tens of thousands of dollars or more. This is one reason shares are often considered more accessible for younger or first-time investors.
Should I sell shares or property if the market falls just before I need the money?
This depends heavily on your personal circumstances, including how much cash you hold, your other assets and your timeframe. Holding adequate cash reserves ahead of any known future need for funds is one of the best ways to avoid being forced into a poorly timed sale. Speak with a Morgans adviser before making a decision.
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