Over the years, a perpetual debate has centred around investing in residential property versus shares. While opinions vary, both investments exhibit distinct characteristics and can diversify your investment portfolio. 

For starters, informed observers generally agree that property and shares offer comparable returns over an investment cycle of at least ten years, often achieving annual gross returns of 8 – 10%.

However, on a risk-weighted basis, residential property tends to outperform shares, primarily due to the lower volatility of the bricks and mortar market. Unlike the share market, which experiences daily price fluctuations due to constant buying and selling, the property market is characterised by greater stability. The transparency of share prices, influenced by factors such as company performance, external political and economic conditions, and the lack of investor control over these variables, contributes to the higher volatility of shares.

The uncertainties and frequent swings in the stock market have prompted a shift among self-funded retirees, self-managed superannuation funds, and individual investors towards less risky alternatives, such as residential property.

Residential real estate returns have even defied higher interest rates over the past year or so, with average values across the nation up by more than 8% and 12.8% when you add returns from rents, according to the latest from CoreLogic[i]. Drilling down, the results are best in Perth, where values are up 16.7% (total returns 22.2%) and Brisbane, where values increased by 14.8% and total returns by 19.5%.

Moreover, the increases in values and total returns during this period can partly be attributed to a shortage of long-term rental accommodation and heightened rental demand.

Furthermore, Australia is presently facing a significant housing scarcity, as data shows a 2.1% decrease in home starts for the 2023-24 period, totalling around 170,100. This figure must catch up to 200,000 homes required annually to accommodate population growth. This shortage has contributed to rising house prices and rental rates. Therefore, with consumer confidence on the rise and financial markets predicting interest rate cuts by mid-year, history suggests that the current climate presents an opportune time for residential real estate as an investment option.

However, it would help to consider consulting with your financial advisor before deciding on your upcoming investment strategy.

For additional information regarding the property market in a suburb or town you are contemplating for investment, contact your local Raine & Horne office today. 

https://www.corelogic.com.au/__data/assets/pdf_file/0012/21207/CoreLogic-HVI-FEB-2024-FINAL-wCPI.pdf

https://masterbuilders.com.au/housing-accord-targets-within-reach/