Property or shares in today’s market?

Just over half Australia’s household wealth is held in housing¹, making us one of the most confident property investing nations² And with interest rates at historic lows and uncertainty in global equity markets, there is an expectation more investors will enter the property market³.

But is this belief in bricks and mortar still well-founded? We weigh up the pros and cons for property and shares in today’s market.

While property is traditionally seen as a less risky investment than shares, specific housing markets can fall – as we’ve seen recently in Perth and Darwin¹. Timing your entry and exit to the property market is just as important as timing an equity investment. And obviously, past performance is also no indicator of what may happen next in either market.

The hunt for yield

The price we pay for this continued housing price growth is an increased pressure on rental yields – especially in Sydney and Melbourne with gross rental yields now at 3.1 per cent and 2.9 per cent respectively¹.

Compare that with current dividend yields and term deposit rates, and the income return on property investment looks a little less favourable – especially if the expected increase in apartment supply in inner Sydney and Melbourne areas¹lead to longer vacancy periods.

On the other hand, there are no guarantees dividends will be paid. This is why diversifying investments across asset classes is simply common sense.

Simson Sanaphay, Citibank Product Specialist, believes that "in a world of persistently low interest rates, income-starved investors will come to the equity market or seek alternative investments to find yield."

Ben Streater, Citibank’s Senior Manager – Investment Products, is also seeing increasing interest in Citibank’s structured and fixed income products.

"Fixed income investing is becoming more popular as an alternative way for investors to generate returns," Streater comments. "Our clients like the certainty of income more than the uncertainty of growth, because once you’re paid income it can't be taken away from you."

Quality is the key to capital growth

Focusing on quality assets will make the difference for long-term gain – whether in shares or property. This is where research into specific opportunities can pay off.

"We do not believe we are at the start of a sustained global bear market," says Sanaphay. "However, political wrangling and uncertainty continue to dominate the headlines, and many asset prices are likely to see increased volatility."

"Citi strategists are forecasting a reasonable 7 per cent gain in global equities to mid-2017, with equities and commodities being cross-asset outperformers through this period," Sanaphay notes. He says Citi analysts believe selected sectors may outperform broad equity indices, including energy, technology and healthcare.

Streater says Citi offers global access and exposure to these sectors, through managed funds or structured products. "Depending on your investment goals, we can develop a structured product to suit your view on a particular market."

Factor in the costs of entry and exit

For many investors, a choice between shares and property ultimately comes down to how much debt they are prepared to carry. Property has a much higher cost of entry, and ongoing property management fees, maintenance and insurance all add to overall cost of investment.

Shares may be more accessible than property, but it’s important to time the market. And ultimately, any investment decision starts with your investment goals and appetite for risk. Weigh up potential capital growth (or loss) against income return, and take the time to research and choose quality investments across a range of different asset classes.