Thinking about shares vs. property?
Both are solid investment options that have a history of delivering strong and reliable capital growth over the long term. But what should you do with the proceeds once you dispose of an investment asset?
The latest CoreLogic data on home resale profitability provides some numbers for us to consider in terms of shares vs. property.
Property sellers reap record median capital gain
Australian property delivered a record median capital gain of $285,000 to homeowners and investors who resold their properties during the June quarter.
That's the highest median gain recorded since CoreLogic began keeping records in the early 1990s.
CoreLogic's Head of Research, Eliza Owen, said the record gain comes amid the national property value resetting its record high every month since November last year.
That's occurring despite higher interest rates, too.
The main reason the median national property value is consistently rising is a shortage of homes for sale in the markets with the highest demand.
Among the capital cities, those markets are Brisbane, Perth, Adelaide, and, to a lesser extent, Sydney.
The supply/demand balance can change at any time, depending on market sentiment and the number of new properties built and marketed for sale by developers.
New building approvals and completions are very low due to high construction costs and community resistance to new apartments in some areas.
Until the supply dynamic changes, homeowners in most markets are well-positioned to reap the rewards of today's tight supply dynamic.
Indeed, the June quarter sales data showed that 94.5% of the 91,000 resales were profitable, which is one of the highest percentages recorded since June 2010.
Why are more homes selling for a profit?
In the June quarter, Brisbane sellers had the greatest success, with 99.1% of homes sold for a profit.
In Adelaide, 98.7% of resales were profitable, and in Perth, 95.4% of resales achieved a capital gain.
These high rates of success are unsurprising, given these three capital city markets have seen the strongest price growth by far in 2024.
Of course, some properties sold at a loss. The median capital loss recorded per property was $40,000.
Owen said homeowners were achieving nominal capital gains on shorter hold periods at the moment.
This partly reflects the rapid price rises seen during the COVID boom across the country, as well as further price growth over the past 12 months in certain markets.
Even though the market experienced a correction in 2022, median home values in every capital city and regional area are higher today than they were in early 2020, when the pandemic started.
For example, according to the latest CoreLogic data, Perth home values are 72.5% higher today than they were in early 2020. Adelaide values are 67.3% higher, and Brisbane values are 65.1% higher.
Home values in every other capital city, bar Melbourne, are at least 25% higher. (Melbourne values are 10.1% higher. This market has some unique challenges that have dampened price growth.)
With the busy Spring season now underway, Owen said the rate of profit-making sales would likely continue for a while.
However, she said the market was facing some headwinds, with interest rates likely to be higher for longer and rising prices creating more affordability pressure in many areas.
Owen said:
Combined with what is looking like a robust spring selling season, the depth of buyer demand to deliver higher and higher profits may be tested in the coming months.
Shares vs. property: So, what to do with that $285,000 gain?
Just for fun and inspiration, let's consider what would have happened had the property investors who scored a $285,000 gain during the June quarter invested that money in ASX shares on 1 July.
Say you invested your $285,000 in a simple index-tracking exchange-traded fund (ETF) like the Vanguard Australian Shares Index ETF (ASX: VAS).
On 1 July, the VAS ETF was trading at $95.93. So, $285,000 would have bought 2,970 units (total consideration of $284,912).
Today, about 11 weeks later, the VAS ETF is trading for $102.03. So, your $285,000 investment would now be worth $303,029.
What if you'd invested your $285,000 in one of the momentum stocks of the moment, Zip Co Ltd (ASX: ZIP)? The Zip share price has ripped up the charts recently, so this will be an interesting case study!
On 1 July, the buy now, pay later stock was trading for $1.44. So, your $285,000 would have netted you 197,916 shares (total consideration of $284,999).
Today, the Zip share price is $2.72. So, your $285,000 would now be worth $538,331.
Woah!
But there's a big problem with this option. There is no diversification for your investment. No sensible investor would put all their money into one ASX stock. The risk is too high.
Plenty of ordinary investors would rather invest their $285,000 in the VAS ETF despite the lower returns delivered over the past 11 weeks between these two examples.
The VAS ETF seeks to mirror the performance of the S&P/ASX 300 Index (ASX: XKO) before fees. This means your $285,000 investment would be spread across the biggest 300 companies on the market.
These include blue-chip shares like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia Ltd (ASX: CBA), and CSL Ltd (ASX: CSL), along with many up-and-coming companies — like Zip!
