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History shows, property is better than shares

Over both a 10 year period and a 20 year period, house-price growth in most Australian capital cities has been far greater than the return from shares, according to John Edwards, the chief executive of real estate research company Residex.

The figures are compelling and based on the average gross real capital growth, show that the average annual return for houses over a the 10 years to mid 2009, was 12.55% for Melbourne, 8.21% for Sydney and 13.83% for Brisbane, whilst the All Ordinaries Index returned 3.71% a year over the same period.

In the 20 years to mid 2009, the average annual house returns was 11.46% for Melbourne, 8.51% for Sydney and 11.39% Brisbane with the All Ords returning an average 6.32% annually.

Edwards says that investing in property is a winner compared to other asset classes if the two most important considerations in investing are risk and return. This is why lenders are prepared to lend so aggressively for housing as they also believe that it has the lowest risk with the best returns.

Property investments meet both requirements if the most desirable assets are those with high return and low risk, says Edwards.

“This is particularly true for long-term property investments; where the property is allowed time to achieve its expected return.”

“Share investments are highly volatile and do not generally match the expected returns seen in property. The return from shares is substantial though, and their volatility makes them an ideal short-term speculative investment, but only for risk takers.”