Shares vs property is one of Australia's favourite money debates, and most comparisons leave out the costs. House price charts look impressive, but they don't show what holding a property for decades involves. Here's how the two compare once the hidden costs are counted.
Key Takeaways
- RBA estimates put basic residential holding costs at around 2.6% a year, before any loan interest.
- Gross rental yields of around 3% can leave net income close to zero once holding costs are deducted.
- Listed shares settle 2 business days after a trade, while selling a property generally takes much longer.
- A fair comparison counts 4 cost layers: holding costs, financing, transaction costs and ongoing capital spending.
Why do house price charts mislead?
Most property vs shares debates compare raw house prices with share market returns. A sale price doesn't show what it cost to get there:
- Renovations, major repairs or rebuilds.
- Ongoing maintenance.
- Holding and transaction costs across the whole ownership period.
Buildings age, so they need regular capital spending to hold their value. Share market returns, by contrast, are reported after companies have paid their own operating and reinvestment costs.
What are the hidden costs of investing in property?
Ongoing costs
- Council rates and insurance.
- Maintenance and repairs.
- Body corporate fees and land tax.
- Vacancy periods with no rent.
Upfront costs
- Stamp duty and solicitor fees.
- Building and pest reports.
- Buyer's agent fees.
What does this do to rental income? RBA estimates put basic holding costs at around 2.6% a year, even before financing costs. Set against gross rental yields of around 3%, that can leave a near-zero net yield.
Don't forget the loan. Many investors rely on negative gearing, where rent doesn't cover costs and they fund the shortfall themselves. Interest-only loans lower early repayments but repay no principal, which leaves returns leaning on future price growth.
What costs do shares carry?
- Brokerage each time you buy or sell.
- Fund fees, if you invest through ETFs or managed funds.
- Tax on dividends and capital gains, which franking credits may reduce.
- Price swings, because shares can fall sharply in the short term.
Shares don't need repairs or tenants. They do ask for a steady nerve.
How easy is it to get your money out? Shares can generally be sold on any business day the market is open, while a property sale involves marketing, negotiation and settlement. Liquidity matters if you might need the money at short notice, though it can also tempt some investors to sell in a panic.
How do shares and property compare side by side?
What does a simple example look like?
Take a hypothetical $800,000 property with holding costs of 2.6% and a gross rental yield of 3%. The sums work out like this:
- Holding costs: $20,800 a year.
- Gross rent: $24,000 a year.
- Left over before loan interest: $3,200, a net yield of 0.4%.
This is an illustration only, using the figures above.
How does tax treat each asset?
- Rental income and dividends are both generally assessable.
- Capital gains on a sale are generally taxable for both.
- Franking credits may reduce tax on Australian dividends.
- Property may attract deductions, such as some holding costs and depreciation, where eligible.
Tax rules change, so confirm your position with your accountant.
What does borrowing change?
Leverage means borrowing to invest, and it magnifies gains and losses alike. Property is commonly bought with a large loan, while shares can be geared through products like margin loans. It's worth testing your cash flow against higher interest rates either way.
How do you decide between shares and property?
Neither asset wins in every market, and past performance isn't a reliable guide to future returns. Weigh these first:
- Your timeframe.
- The cash flow you can comfortably sustain.
- How much concentration risk you're prepared to carry.
- How quickly you might need access to the money.
- Your tax position.
Many investors hold both. These pages can help you go further:
- Our buy and sell shares service explains how to invest directly.
- Our portfolio construction service looks at how assets fit together.
- New to shares? Start with what shares are and how they work.
For another angle, read more about the property vs shares debate between Morgans specialists, and our guide to investing covers the wider options.
A Morgans adviser can't provide advice on an investment property. To discuss your share investing options, contact a Morgans adviser.
Frequently asked questions
Is property still a good investment in Australia?
It can be, but it shouldn't be viewed in isolation. Count the total net costs of both property and shares, and speak to a qualified specialist about investment property.
Why do house price charts look so impressive?
They show sale prices but not renovation, repair or maintenance costs, so growth can look higher than it was. Adding holding costs of around 2.6% a year gives a fuller picture.
Are shares riskier than property?
Share prices usually move more in the short term, while property concentrates risk in one asset and is harder to sell quickly. Match your choice to your timeframe and comfort with risk.
What is the biggest hidden cost in property investing?
Capital spending over time, such as major renovations and rebuilds, which house price charts rarely include. Budget for it before you buy.
Which performs better long term, shares or property?
It depends on the period, the assets and which costs are counted, and past performance doesn't predict the future. Compare after-cost, after-tax outcomes with an adviser.
