Stocks versus property: Which is better?

Scott Kuru January 14, 2025 5 min read

KEY POINTS

Equities grew faster than property in 2024, but property has outperformed the share market over the last ten years
Equity markets tend to be more volatile, while housing performs in smoother cycles
Overall, banks are more willing to loan more money for property at lower interest rates than for equities, increasing the leverage of property investment

It’s a perennial question.

Where should I invest my money - in property or the share market?

New analysis from CoreLogic helps answer that question.

It finds that while the share market grew faster in 2024, property has notched up bigger gains over the last ten years, underlining that property investors should take a long-term view.

The details

CoreLogic’s Head of Research, Tim Lawless, says the best way to compare property and Australian equities is to use an accumulation (or total returns) index to compare the two asset classes.

“The total returns include capital gains as well as the reinvested yield/dividend,” he says.

Based on the S&P/ASX 200 accumulation index, the total return from equities in 2024 was 11.4%, outperforming housing with an 8.3% total return across the combined capital cities.

"Despite uncertainty in the global and domestic economic outlook and the cost-of-living crisis, the ASX reached a series of new record highs in 2024, buoyed by moderating inflation, coasting economic conditions and a strong outing from the banking sector," says Mr Lawless’ colleague, CoreLogic Economist Kaytlin Ezzy.

By comparison, she says the total return from the housing sector, which considers both value growth and rental income, underperformed in 2024.

"Despite showing some resilience in the first half of the year, the accumulation of stock, and the higher for longer interest rate environment has seen the change in dwelling values slow, and, in some cities, shift into negative territory.

"Similarly, the normalisation in net overseas migration and the increase in the average household size has seen rental growth continue to ease over the year."

Ms Ezzy says these factors saw housing offer a total return of 8.3% over the 2024 calendar year, down from the 13.5% total return seen in 2023.

However, it’s a different story over the longer term.

Housing has outperformed equities in six of the past ten years and, cumulatively, has delivered total returns of 132.6% compared to 126.4% over the past decade.

“Total returns from equities have seen a larger rise since the onset of COVID (partly due to a low base in March 2020 when equity prices fell sharply at the onset of the pandemic), but housing has outperformed over the past five and ten years,” CoreLogic’s Head of Research, Tim Lawless, says.

“The annual change in the two asset classes highlights equity markets tend to be more volatile while housing shows much smoother cycles,” Mr Lawless says.

As for investment advice, “regardless of asset type, time on the market has beat timing the market," CoreLogic’s Kaytlin Ezzy adds.

Other considerations

While this comparison between the returns from property and shares is interesting, it doesn’t address one fundamental pillar of investing.

Leverage.

There is a very real reason the amount of money Australians have tied up in residential property is three and a half times the amount they have invested in the stock market (excluding shares held by super funds on behalf of working Aussies).

Leverage, in financial terms, is the use of borrowed capital to fund an investment.

For the investor, it works like this:

The safer an asset, the more money a bank or a financial institution will lend you to invest in it.

Generally, banks will lend most buyers and investors the 80% balance to buy a residential property if they come up with a 20% deposit.

In some cases, banks will lend you up to 95% of the cost of a home if you take out lenders mortgage insurance.

So, what about shares?

If you borrow money to invest in a share portfolio, most banks will loan you an absolute maximum of 70% loan-to-value ratio in the form of a “margin loan”.

In other words, you have to put up at least a 30% deposit.

So, you are already at a disadvantage against many property owners, as you have had to save up for longer to fund a similar-sized investment.

There can be consequences if the value of the shares in your portfolio drops.

“If the value of your security drops in relation to the loan amount, you may exceed the maximum LVR (Loan-to-Value Ratio),” Australia’s largest bank, CBA, explains.

“This will trigger a ‘margin call’ and you’ll be required to either reduce your loan amount, contribute additional security or sell part of your investment until your LVR is below the maximum.”

While this happens quite often with share portfolios, it's very rare that Australian residential mortgage customers get an effective “margin call” from the bank if the current value of their property drops below the bank’s maximum LVR.

Another point worth noting is that of the 2,200 stocks and securities traded on the Australian stock exchange, banks will only consider lending you money against a fraction of these.

In the Commonwealth Bank’s case, it’s just under 500.

You can check out their latest list here.

What’s interesting is that for about 14% of the companies on their list, they’ll only accept 40% LVR for an investment in that stock WITHIN a wider, diversified portfolio of shares.

So, you will have to come up with a 60% deposit for that stock.

On the other hand, if you have a 20% deposit and evidence of means to service a mortgage, banks will pretty much give you a loan to buy a home or invest anywhere in Australia’s 15,353 suburbs.

Interest rates for geared share portfolios are also usually higher than rates for housing investment because the bank perceives there is more risk for this asset class than Australian residential property.

The take-out

Fans of share-trading will often point out that it’s far easier to buy and sell shares than buying and selling property.

But these are usually people who have a relatively modest share portfolio built from savings - not a much larger portfolio sourced from borrowings.

The only real way to achieve financial freedom is to make use of leveraging, essentially using the bank’s money to build your own wealth.

The simple truth is that for most Australians who aren’t already very wealthy, it’s much harder to harness the power of leveraging with shares than with property.