When it comes to investing, there are always two major contenders: property and shares. Each has its pros and cons, but for many everyday Australian families, property is the preferred choice. Let’s break down why.
Comparing Property and Shares
First, let’s look at the returns. According to research by CoreLogic and Aussie Home Loans, the Australian national property market has a capital growth rate of about 6.8% per year. In metro areas, the average residential return is around 3.6%. If you combine both capital growth and rental yield, the total return on property investment comes in at around 10.4%.
Now, let’s compare that with shares. Using data from the US stock market as a reference, over 100 years, the stock market’s annual return is about 6.64%, including dividends that bring the total return to 10.64%. At first glance, shares slightly edge out property by a fraction, with 10.64% compared to 10.4%. But there’s more to consider than just the numbers.
The Issue of Volatility
One of the biggest reasons Australian families lean towards property is volatility. The share market can be incredibly unpredictable, with prices fluctuating wildly. For instance, on October 19, 1987, the S&P 500 saw its largest single-day drop of 20.5%, while the Dow Jones plummeted by 22.6% on the same day. These kinds of dramatic losses just don’t happen in the property market.
In contrast, the property market is known for its stability. While shares can lose a significant portion of their value in a day, property values tend to rise more steadily, making it a safer investment for those who prefer to avoid the rollercoaster ride of the stock market.
Prolonged Recovery Periods
Another drawback of shares is the possibility of prolonged recovery periods after crashes. Take the Great Depression as an example. In September 1929, the Dow Jones hit an all-time peak. The market crashed shortly after, and it took 25 years—until November 1954—for the stock market to recover to its pre-crash level.
In contrast, the Sydney property market, for instance, doubles in value approximately every 9.6 years, according to data from PropTrack. There are no 25-year waiting periods for property values to recover, which is a significant comfort for many investors.
Dealing with Market Drops
Stock market drops are a regular occurrence. The US stock market, for example, experiences a 10% drop roughly every two years, and a more serious 20% fall every six years. For many hardworking families, these frequent and sharp drops are simply too much to handle.
In comparison, the property market offers peace of mind. The ups and downs of shares can be stressful, but property values rarely see such dramatic changes, making it a more predictable and reliable investment option.
Why Families Trust Property
So, why do everyday Australian families choose property? It’s simple—they trust it. They understand it. Property is something tangible, something they can see and touch. It feels like a safer bet than shares, which can be a bit of a mystery to those who aren’t familiar with the stock market’s ins and outs.
For many, the saying “safe as houses” holds true. Property provides a sense of security that shares often don’t, especially when you consider the unpredictability of stock market crashes and the long recovery periods.
Conclusion: Both Can Make You Money, But…
While it’s true that you can make money through both property and shares, at Teach Me About Property, we’ve found that property remains the favoured investment for Australian families. It’s familiar, reliable, and doesn’t come with the emotional highs and lows of the stock market. At the end of the day, it’s the stability and trust that property provides that keeps it at the forefront of investment strategies for hardworking families across Australia.
