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  • Updated:7 Jan 2006
 

06.Property vs shares

We compared investment returns over the 10 years to 31 December 2005 with the growth of median house prices in capital cities over the same period. To compare the growth of houses with other investments on a like-for-like basis, we converted overall median house price changes to an annual compound percentage rate.

House price increases

According to Real Estate Institute of Australia (REIA) data, median house prices in all capital cities more than doubled in the decade ending December 2005.

  • In the 10 years to December 2005, median house prices in Adelaide, Melbourne and Perth increased by around 153% – converted to an annual compounding rate of growth, that’s around 9.7–9.8% per annum.
  • Ten-year growth figures for Sydney weren’t available, but over five years, median prices grew by 53%; that’s around 9% (compound growth) per annum.

Listed property outperforms

  • As the table shows, the best-performing investment we compared for the 10-year period was property — but not direct investment in residential property. Listed property trusts (LPTs) returned an annual average of 14.6% over the decade.
  • LPTs can be bought and sold on the Australian Stock Exchange through a stockbroker and allow you to put your money into companies that invest in commercial properties.
  • Compared to direct property, LPTs offer more liquidity (you can sell the investment faster if you need to), lower transaction costs, more diversification (all your money isn’t stuck in one investment) and require less money to get started.

Caution – past performance figures

  • Past performance figures don’t indicate what’ll happen in the future:
  • Whether Australian property or shares continue their impressive growth rate over the next decade is highly uncertain.
  • When comparing these returns, remember 10 years is a relatively short timeframe for investments.;
  • Since 1995 we’ve seen a property bubble and a share market boom. The last decade may give you an over-optimistic impression of how investments and house prices may change.
Investment growth to end 2005
Returns / growth 10 years
(% pa)
5 years
(% pa)
3 years
(% pa)
1 year
(%)
Australian bonds (A) 7.4 6.0 5.3 5.8
Australian shares (B) 12.3 12.7 21.7 22.8
Small company shares (C) 9.9 13.1 26.1 19.6
Property trusts (D) 14.6 15.7 17.3 12.5
International shares (E) 7.1 –3.6 8.4 16.8
International bonds (F) 8.2 8.4 7.4 6.8
Growth of median house prices to December 2005 (G)
Adelaide 9.8 15.1 13.3 2.6
Brisbane 9.0 16.1 15.3 1.6
Canberra 9.0 14.5 14.4 5.1
Darwin 7.4 12.8 16.4 26.2
Hobart 9.7 19.2 23.4 4.3
Melbourne 9.7 6.8 3.8 1.4
Perth 9.8 15.5 18.7 18.2
Sydney (H) 9.0 2.1 -5.1

Table notes

Our calculations for property trusts, shares, small companies and bonds are based on data provided by Morningstar, for the period ended 31 December 2005.

The house price figures don’t include rents received from investment properties, just the growth in value. Figures for other investment returns include income received — for example dividends for shares — which is assumed to be reinvested.

(A) Composite 0+ years Index.
(B) S&P/ASX 200 Accumulation Index.
(C) S&P/ASX Small Ordinaries Accumulation Index.
(D) S&P/ASX 300 Property Truse Accumulation Index.
(E) MSCI World ex-Australia Net Dividends reinvested Index.
(F) Lehman Brothers Global Aggregate Index Hedged.
(G) Our calculations for median house price increases are based on Real Estate Institute of Australia data, for the period ended 31 December 2005. To compare with investments, we converted overall house price growth into an annual compounding rate.
(H) Comparable 10-year data not available.

 

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