Study finds 40-year return on stocks more than twice that of property
Investors would have been more than two times better off putting their money into the local sharemarket than residential property over the past 40 years, according to research by KiwiSaver provider Grosvenor Financial Services Group.
Grosvenor director Peter Christensen says a $10,000 investment in New Zealand shares in 1971 would have been worth $787,128 at the end of last year - an average of 11.2 per cent growth a year. The same amount of money invested in houses would have grown to $367,352 - an average annual return of 9.2 per cent.
Christensen said historically investors had favoured property investment and many were convinced it offered higher returns for a lower risk.
"However, long-term data proves shares and equities consistently outperform property as [an] investment," he said.
But property investor Olly Newland said it was very difficult to base returns from property on average prices.
He suggested investors would do better to compare the performance of the top 50 suburbs rather than the median price across all property as that meant including small towns.
If the median price of all houses were used, then Newland said a comparison should be made with all listed companies including the small penny-dreadful stocks.
Grosvenor researcher David Beatty said it could not use the figures from all listed stocks as the All Ordinaries index did not go back far enough.
"The NZX50 is the most quoted figure when it came to the share- market and the most used by investment experts," he said.
Beatty said he did not believe including all listed companies would change the figure much.
But Andrew King, president of the Property Investors Federation, said the comparison was flawed and the research was marketing for shares.
"They don't take into account rental income but will take into account dividends on shares," he said.
King added that banks would not lend on shares while they would lend money on property.
"For $10,000 you could buy a $50,000 property back in 1971 and the returns would be a lot higher."
Beatty said the survey had not included rental income in its investment return from property because it was difficult to find reliable data going back to 1971. It was also decided that a lot of rental income was eaten up by the costs associated with property.
Christensen said he was not anti-property, he just wanted people to diversify their investments.
"The message is any wise investor will go into a spread of different asset classes," he said. "By investing in other asset classes you can get a better return than just property."
Click here for more detail on Grosvenor Research
• A $10,000 investment in New Zealand shares in 1971 would have been worth $787.321 at the end of 2011 - a growth per year average of 11.2%
• The same amount of money invested in residential property would have grown to $367,352, an average annual return of 9.2%
NOTE: New Zealand share figures based on the Barclays gross accumulation index up until 1991 the NZSE 40 until April 2004 and the NZX 50 index until the end of 2011 and includes reinvested dividents. The property figures are based on the median price comparison for the Valuation NZ Capital Index and REINZ figures and account for capital growth only. It does not include rental income.