Property as investment vehicle - Part 2

In the preceding article, we have discussed the use of property as an investment vehicle for creating wealth. However the more considerable question is whether property features as a better investment vehicle than other asset class investments, such as, shares.

We are not here to provide a list of pros and cons of property investment when compared to shares. We will cut to the chase by identifying the most significant advantage and disadvantage of property investing over other investment alternatives and develop these in further detail.

[ Blogger note: There is abundance of information available on the web regarding the pros and cons of investing in property and shares. ]

The biggest win that direct property investment has over other investment alternatives including shares is the leveraging capacity in the property we currently hold for future investments. The equity gain in property by means of capital growth can be utilised as a deposit to assist in funding our next investment property purchase.

The major drawback for direct property investment is the fact that property is an illiquid asset class which cannot easily be sold or exchanged quickly. In addition, investing in property is commonly perceived as a long term investment in order to substantiate its risk and reward trade-off.

The quality analysis is conducted which measures the overall performance of property and shares on their real returns at a large number of different investment periods over a relatively long period of time. Based on the results collected from this analysis, we can deduce that:

  1. Shares outperform property over a short term period and therefore regarded as a better investment vehicle for short term investors.
  2. Property outgrows shares over a long term period and consequently considered as a superior investment vehicle for long term investors. For an investment period of more than six years, the total rate of return on property investments is generally higher when compared to shares investments.
  3. Prudent investors normally have the utmost intention to diversify their investments portfolio which could be best achieved by spreading and balancing both risks and returns across different asset classes. This would suggest investing in shares with a short term view and property with a long term prospect.

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