Australians have traditionally loved buying property. Per capita, we invest more heavily in property than any other nation on Earth. However, shares have travelled exceptionally well in the past five years so what is the better investment? Kate Williams finds out.

Bricks and mortar is perceived as a safe investment, especially in the wake of recent market volatility. However, a long term investment in blue-chip shares has proved to be just as stable, and generally more profitable. So when it comes to investing, which is better, property or shares?

Real Estate Institute of Queensland managing director, Dan Molloy, agrees that Australians hold an emotional attachment to property but suggests this is backed up by a history of solid returns.

“Everyone’s got a bit of a passion for real-estate. It’s the great Australian dream of home ownership,” Mr Molloy says.

“Naturally they’re looking to have a balanced portfolio, but it’s that attachment and comfort with real estate and its solid performance over many, many, many years that certainly attracts people to [real estate] as their primary investment.”

Trent Muller from ABN AMRO Morgans says equities have delivered an equally solid performance over the long term, and have made significantly higher returns over the past five years.

“If you look back five years our market has performed quite well, it’s performed to the extent of 20 per cent per annum over that period of time from its lows in 2003,” Mr Muller says.

“So I think in terms of comparing the share market with the property market it’s performed exceptionally better than the property market has.

“If you also look on a 10 to 20-year basis the difference between a property investment and a share market investment is fairly comparable. You’ve got returns of anywhere between 11 and 13 per cent between the two of them.

“So they’re pretty comparative on a longer term view but certainly the share market in the past five years has outperformed property investments as a whole,” he says.

However Trent points out that there is more to analysing an investment than just capital growth. Diversification, transparency, liquidity and taxation issues should also be considered.

“There’s a number of different ways that you can compare a property investment with a share market investment, the first of which is diversification,” he says.

“With diversification, it provides less risk. For example, you’d put $50,000 into a financial stock, you’d put $50,000 into an industrial stock, a property trust, a mining services, resources … so you’ve got a number of different sectors which you can spread your risk across.

“In terms of other comparisons between a property investment and share market investment, you’ve got a thing called liquidity,” Trent says.

“With the share market you know what the share price is doing on a second by second basis. And with liquidity, if an investor wants to invest in it they can invest straight away.

“There’s no loopholes, if you’ve got an advisor you can speak to them over the phone, it will take a couple of seconds to instruct the advisor to put a sell order or a buy order on the market and they’ll do it straight away.

“The other good thing about investing in the market is franking credits. There are obviously taxation advantages in investing in the share market,” Trent says.

Past performance certainly suggests both property and equity investments are strong performers. However, current share market volatility and recent interest rates hikes have left many investors unsettled and confused.

“We’ve seen some changes in the way that interest rates have been set recently with banks acting outside the Reserve Bank’s normal regime,” Mr Molloy says.

“But if that was in isolation, that’s one issue. But it’s also coming on top of, as we’ve seen in the last couple of weeks, some quite volatile activity in the stock market.

“So people are questioning what their mix of investments should be and factoring in whether the increases in interest rates are enough to really concern them or alternatively, offsetting that against what I guess they perceive as more volatility in the share market.”

With these risks in mind, REIQ managing director Dan Molloy suggests investors need to analyse their investment prospects objectively.

“It’s important to remember that these types of decisions aren’t the emotionally charged decisions perhaps that buying a home to live in is,” he says.

“So you’ve got to be a lot more objective in the market place and be comparing, on their merits, one form of property against another, one form of investment against another.”