The residential property versus shares debate is popular and can be as fiery as political and religious debates. So I’m often asked about comparisons of the long term returns.
Following is some commentary I came across from Dr Shane Oliver, Chief Economist and Head of Investment Strategy at AMP Capital Investments. (Emphasis added by me.)
After allowing for costs, residential investment property and shares generate similar long-term returns. This can be seen in the next chart, which shows an estimate of the long-term return from housing, shares, bonds and cash.
Over the long term, the returns from housing and shares tend to cycle around each other at similar levels. In fact, both have returned an average of 11.5% p.a. over the last 80 years or so. While housing is less volatile than shares and seems safer for many, it offers a lower level of liquidity and diversifcation. The bottom line is, once the similar returns of housing and shares are allowed for, and these characteristics are traded off, there is a case for both in investors’ portfolios over the long term.
Source: Oliver’s Insights, Edition 37 – 25 November 2010, ‘Australian housing – is it a bubble? What’s the risk?’