Why Property Investment Can Be a Better Bet Than Listed Shares For Your Next Investment

Navigating the ever-changing landscape of investment choices can be tricky or may seem overly complex. The decision between fixed property and listed shares is one of the more debated investment decisions facing new and experienced investors alike. There are advantages and disadvantages to both choices and which is better for you will be determined by your investment goals (term, required return, investment funds etc.) and how much volatility and liquidity you are comfortable with when investing your hard earned capital.  

Liquidity, leverage, volatility and practical use are the most important differentiators when it comes to comparing these two investment options. Shares in listed companies are traded on a stock exchange where the value of the shares will rise and fall on trading activity as investors buy and sell shares based on their perception of whether a company will perform or not over a short, medium or long term. Fixed property on the other hand is also bought and sold however the transactions are typically slower with negotiations being more complex than a simple buy or hold at a certain price. Demand for property is influenced by so many factors some of which are not even investment based take luxury homes for example or homes in sought after areas where security of tenure and access to schools or amenities becomes the driving decision maker over a more narrow financial return on investment.

Shares generate equity returns through cashflow in form of dividends and capital growth on share values increasing over time. Fixed properties generate returns in the form of net rental/ net operating income for renting out property and capital appreciation due to increasing property values.

Here are a few differences and why we see Property as a better bet for us.

Hedge Against Economic Uncertainty and Volatility

Property investment in South Africa serves as a robust hedge against economic uncertainty. In times of market volatility or economic downturns, property values tend to remain relatively buoyant, providing investors with a secure anchor amidst the turbulent financial markets that usually affect equity markets more acutely.  This stability is particularly appealing to risk-averse investors who prioritize capital preservation and long-term growth. Companies go bankrupt or demand for a product or service can easily drop off quickly and companies can lose value sometimes overnight. Property on the other hand tends to remain relevant from one buyer or occupier to the next. A real practical example of this is take your typical neighbourhood shopping centre or mall how many of the different shops you have seen open have gone out of business and closed down while the shopping centre or mall continues to be relevant just with a new tenant opening up in the same spot where the previous business fails. Property tends to be less niche overall people need somewhere to shop, socialise, manufacture products and of course basically everyone needs a roof over their head at night. When a company fails or is placed into administration people will look to the value of its fixed property as the most valuable assets the company can sell off to bring in funds or settle creditors. Even when a company has no value left in their brand, customer base or zero demand for their product their product will likely not lose much value unless it is highly specialised or specific to their requirements that other buyers or renters cannot use or need the owner to do substantial renovations in order to utilise it.

Tangible Asset with Intrinsic Value:

Unlike shares, which represent ownership in a company and are subject to market sentiment and speculation, property investment offers investors tangible assets with intrinsic value. Land and buildings have inherent worth that is not solely reliant on market fluctuations or investor sentiment. This tangible nature of property investments provides a sense of security and stability, as investors can physically see and touch their assets, knowing that they hold real value in the real world. Investment into shares in company often doesn’t come with the ability to use the company’s assets where as you can place a relative in an apartment you own or stay in an air bnb you own. This might be as simple as storing equipment in a yard in one of your properties whereas if you were invested in a company on the stock exchange you would find it hard to ask them to come and store something of yours due to you being a shareholder you would likely experience the company in the same way a normal customer does however property offers you more flexibility in its usage value.

Leverage:

Investing in property allows you to loan against the cashflow with the asset as security for the loan so depending on the loan to value with a portion of equity you can purchase a property for far more than the equity you have available or want to invest to increase your returns by using debt. Banks aren’t always willing to loan for the purchase of shares or investment into companies which are seen typically as higher risk investments whereas a property finance lend with a fixed property as collateral is viewed by lenders as lower risk and therefore cost of debt is likely to be lower and you can purchase higher value properties with less down increasing your return on equity invested.

Liquidity:

This is where listed shares may have the edge over fixed in that one can sell shares in the market quickly and realise the value of the shares where property can be subject to a lengthy property transfer process and the market for equities is likely far larger. This of course depends on the liquidity of the share itself vs the desirability of the specific property some properties in high demand will be easier to sell than an illiquid share in a company that has a low trading volume or demand for its shares. Another important aspect is your investment horizon and property is typically longer term investment for building wealth over time so liquidity in the short term is not often the goal as it is with us.

Real sense of ownership:

With property investment you purchase an actual piece of real estate and the sense of ownership one feels is perhaps the highest with fixed property. You get to be involved in decisions on what to do with your property There is a sense that this is something is yours whereas unless you are a major shareholder in a company you are unlikely to feel the same level of ownership you do in driving past a property you own.

These are just some of the reasons we see fixed property as a better choice for us. Naturally we are property people at heart. It’s what we know, do and love everyday where as others might have a deep understand of the complex equity markets and unlock better value there. It is all about finding the right investment choice for you that is aligned with your investment goals and you have the right experience or team/advisor that can assist you. If you do want to know more about our investment choices and which properties we invest with contact us on invest@neighbourgood.co.za we would love to assist you on your property investment journey however we can.

Many happy GOOD returns,

Neighbourgood Investment Team