Investing in residential property versus shares – which is better?

Property and share markets are two of the most popular avenues for building wealth in Australia. While opinions are often polarised, the long‑term performance difference between residential property and Australian shares is surprisingly small. This article compares the risk profiles, time horizons and practical pros and cons of each asset class so readers can decide which—or what mix—suits their situation.

Takeaways:

• Long‑term returns are comparable. Over the 20 years to December 2017, residential investment property returned only about 1.4 % more than Australian shares. Investors shouldn’t assume property always outperforms.
• Match the investment to your risk appetite and timeframe. Shares are more volatile but allow flexibility and shorter investment horizons, whereas property ties up capital and is generally a long‑term commitment. Your comfort with risk and investment timeframe should guide the choice.
• Understand the pros and cons of each. Shares offer ease of access, diversification and liquidity, while property provides tangibility, potential rental income and tax breaks. Evaluating these factors—and considering a diversified approach—helps investors make balanced decisions.

Learn more about investing your wealth or speak to a financial adviser.

Appetite for risk

While all types of investment classes will come with some degree of risk, given the nature of shares being highly volatile, you are generally likely to experience greater fluctuations with your returns and losses compared to residential property, particularly in the short to medium term.

As the value of shares can change daily, it’s important to consider how comfortable you are with risk and whether you can stomach your portfolio experiencing extreme gains or losses on a regular basis.

Investment timeframe

Residential investment property is generally viewed as a long-term investment that over time may offer positive returns.

Shares on the other hand, are generally used as a short to medium term investment as timing the market is a lot more important than time on the market. This is because it’s mostly about buying low and selling high.

Investing in shares versus property: some of the pros and cons

Regular income stream

Investment property offers access to a passive income stream or a regular cash-flow as a result of your rental income which you may choose to reinvest.

The share market does have dividend paying stocks too, which provide a regular income stream. These are often not as much as what you could earn from an investment property however.

Ease of access

One of the main advantages of investing in the share market is it’s relatively easy to get into. You can use an investment platform, invest via a managed fund or simply download an app. It also doesn’t cost a significant amount to get started, although there may be fees that you could be required to pay.

Residential property on the other hand, requires a substantial upfront investment as well as ongoing expenses to maintain the property.

Diversification

Unlike with residential property, one of the great advantages of investing in the share market is the ability to spread your money across many industries, sectors, geographic areas and large cap or emerging markets. This means you have a greater opportunity to diversify your portfolio and reduce your risk. For instance, if one of your shares plummets, your other investments may help to level out your losses.

Liquidity

One of the main benefits of investing in shares is the ability to convert your investment into accessible cash. This means if you need to access your money quickly, you can simply sell part of your portfolio.

Residential property doesn’t offer the same luxury. It may take a few months or longer to sell your property depending on the market.

Tangibility

One of the great benefits of property is it’s tangible – something you can see, feel, and touch. This means you have complete control over how your investment is managed.

With the share market this isn’t the case. In fact, the success of your investment is largely impacted by the people who run the company. For instance, if the company was to go bankrupt, you would lose your entire investment.

Tax breaks

There are tax breaks available in both shares and property.

If you invest in a dividend paying stock – companies that pay you a regular income– the money you receive from your dividends is taxed at a lower tax rate than the money you’d make from your income.

With a residential investment property, you may also be able to claim against your taxable income for things such as repairs and maintenance to the property, insurance costs, agent and strata fees.

Bottom line: if you’re considering whether investing in residential property or shares is a better option to build your wealth, factor in your investment timeframe and comfort with risk.