Is property a safer investment than shares?

Property prices are less volatile day to day, but property is not without risk. Property values can and do fall, and leverage amplifies both gains and losses. Shares are more volatile short term but offer diversification that single property investments cannot match.

Can I invest in property through shares?

Yes. Listed property trusts and REITs (Real Estate Investment Trusts) allow you to invest in property through the share market. This gives you property exposure with the liquidity and diversification benefits of shares.

How much do I need to start investing in shares?

You can start with as little as $5 to $50 on some platforms. However, for meaningful wealth building, regular contributions of $50 to $500 or more per month are typical.

Should I pay off my mortgage before investing in shares?

This depends on your interest rate and risk tolerance. Paying off your mortgage provides a guaranteed return equal to your interest rate. Shares may offer higher returns but with more risk. Many people do both simultaneously.

Investment Property vs Shares NZ: Which Is Right for You?

The property versus shares debate is one of the most common discussions among New Zealand investors. Both asset classes have created significant wealth for Kiwis, but they work very differently and suit different people. Understanding these differences will help you make the right choice for your situation.

Understanding the Key Differences

Before comparing returns, it is important to understand how these two investment types fundamentally differ. Property is a tangible, leveraged asset that requires active management. Shares are ownership stakes in businesses that can be bought and sold quickly with minimal ongoing effort.

Property Investment: Pros and Cons

Advantages of Property

Leverage: You can borrow 60% to 80% of the purchase price, amplifying your returns. A 10% increase in property value represents a much larger return on your deposit.
Tangible asset: Many people feel more comfortable owning something they can see and touch.
Rental income: Property provides regular cash flow that can cover mortgage payments and expenses.
Control: You can actively improve your property to increase its value and rental income.
Less volatility: Property values do not fluctuate daily like share prices, which can be psychologically easier.

Disadvantages of Property

High entry costs: You need a substantial deposit, plus legal fees, inspections, and other purchase costs.
Illiquidity: Selling a property takes weeks or months and involves significant transaction costs.
Concentration risk: Your entire investment is in one asset in one location.
Ongoing management: Tenants, maintenance, and compliance require time and effort.
Additional costs: Rates, insurance, maintenance, and property management eat into returns.

Share Investment: Pros and Cons

Advantages of Shares

Low entry costs: You can start investing with as little as $50 through platforms like Sharesies or InvestNow.
High liquidity: You can buy and sell shares in minutes, accessing your money quickly if needed.
Diversification: Even small amounts can be spread across many companies, industries, and countries.
Passive investment: Once you buy shares or funds, they require no ongoing management.
Lower transaction costs: Buying and selling shares is much cheaper than property transactions.

Disadvantages of Shares

Volatility: Share prices fluctuate daily, which can be stressful for some investors.
No leverage: You generally cannot borrow to invest in shares (margin lending exists but is risky).
Less control: You have no influence over company decisions or performance.
Emotional decisions: The ease of selling can lead to panic selling during market downturns.
Intangible: Some people struggle to feel connected to share investments.

Comparing Historical Returns

Both property and shares have performed well over the long term in New Zealand, though comparing them directly is not straightforward due to the leverage typically used in property.

Typical Long-Term Returns:

NZ residential property: 6% to 8% capital growth plus 3% to 5% gross rental yield
NZ shares (NZX50): 8% to 10% total return including dividends
Global shares: 7% to 9% total return including dividends

Note: These are indicative long-term averages. Actual returns vary significantly based on timing and specific investments.

When you factor in leverage, property returns on invested capital can be significantly higher. However, leverage also amplifies losses if property values decline.

Which Suits Your Situation?

Property Might Be Better If You:

Have a substantial deposit saved (at least $150,000 to $200,000 in most markets)
Are comfortable with debt and understand how leverage works
Want an investment you can actively improve and control
Have time to manage a property or budget for property management
Prefer a less volatile investment with tangible value
Plan to hold for the long term (at least 10 years)

Shares Might Be Better If You:

Are starting with smaller amounts of capital
Want a hands-off investment that requires no management
Value liquidity and the ability to access your money quickly
Prefer diversification across many investments
Are comfortable with short-term price volatility
Want to invest regularly with small amounts

The Case for Both

Many successful investors do not choose between property and shares; they invest in both. This approach offers several advantages:

Diversification: Different asset classes often perform differently in various economic conditions.
Flexibility: Shares provide liquidity while property provides stability.
Balance: Property's leverage potential combined with shares' diversification creates a balanced portfolio.
Life stage appropriate: You might focus on shares when young, then add property as your capital grows.

Tax Considerations

Tax treatment differs between the two asset classes:

Property: Rental income is taxable. Capital gains may be taxable under the brightline test or if you are in the business of property. Mortgage interest is 100% deductible from 1 April 2025 for all residential investment properties.
Shares: Dividends are taxable. Capital gains on shares are generally not taxed for passive investors (though rules exist for some situations). PIE funds offer capped tax rates.

Making Your Decision

The best investment is the one that suits your goals, risk tolerance, capital, and time. Consider these questions:

How much capital do you have available to invest?
How comfortable are you with debt?
How much time can you dedicate to managing your investment?
What is your investment timeframe?
How would you react to a 20% drop in value?
Do you need access to your invested capital in the short term?

There is no universally right answer. Both property and shares have helped New Zealanders build significant wealth over time. The key is choosing the approach that works for you and sticking with it through market ups and downs.

Investment Property vs Shares NZ: Which Is Right for You?

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Key Takeaways