Stocks Versus Real Estate

Stocks Versus Real Estate

Joseph Darby

Is it better to invest in real estate or shares?

In the world of wealth-building, the debate between investing in real estate and stocks is a famous one.  

Once you start building up sums to invest, the common question that arises is: to achieve the best long-term results, should your hard-earned savings go into real estate (“property”), and shares (“stocks”)? That’s because these two asset classes are the major two ways to grow your wealth.

Real Estate

Let’s systematically explore some of the key advantages of property – which coincidentally often also draws attention to the opposing disadvantages of stocks!

For clarity, we’re going to focus on long-term (“buy and hold”) residential real estate investment in New Zealand: standalone houses, apartments, and townhouses. This is the most common form of property investment for mum and dad investors in our country. There are a variety of other, less common, ways of investing into real estate, including listed property, property syndicates, commercial property investment, and so on.


Property investment is a New Zealand thing to do, it’s just like watching the All Blacks, eating fish and chips, and going to the beach.

Unlike stocks, which might seem to exist as intangible blips on a computer screen, real estate offers a tangible sense of ownership. This is amplified in New Zealand, where the aspiration of property ownership runs deep into our national DNA: we’re a lot more likely to discuss property around the barbeque than shares! Owning a property isn't merely an investment - it's a stake in the land, a claim to stability, and an opportunity for growth.

The satisfaction of driving past your investment property, and even carrying out renovations, creates an undeniable sense of accomplishment for Kiwis.  

Real estate’s appeal is undeniable – it is a cornerstone of stability and growth that has captivated investors for generations.


With property, you have control over most parts of the investment. This includes control over whether you or someone else manages the property, improvements you may wish to make, the tenants you choose, and even how you structure the lending for the property.

Housing Demand

The entire global economy is underpinned by a balance between two things: supply and demand. Property is no different.


Let’s face it, most of New Zealand receives far too much rainfall to live in a tent for any length of time, and unless we try and revert to living in caves, we all need a roof over our heads!

This country also has a growing population, and there’s little reason to see that growth coming to a halt anytime soon.

These factors underpin a critical aspect of property investment: demand for housing and apartments.


Buy land, they're not making it anymore” - Mark Twain

Investment in residential property in New Zealand is often a play on the value of the land underneath the property, not the building(s). The supply of land is limited, especially in New Zealand where largescale land reclamation is highly improbable, and council zoning issues persist.

Taken together, this means the supply of housing is limited, and demand for housing is likely to increase.

Stability Amidst Market Turbulence

While it's true that all investments have their ups and downs, real estate has historically demonstrated a higher degree of resilience when faced with global shocks.

Property markets tend to move at a more gradual pace compared to the stock market, which is renowned for its rapid price fluctuations.

This slower tempo allows real estate investors to make informed decisions and adapt to changing market conditions with a longer-term perspective.

However, real estate markets also go through cycles, influenced by factors like interest rate changes, local economic conditions, global events, and shifts in supply and demand.

Nearly All Millionaires Own Property

Most millionaires are self-made. If you want the same results as other millionaires, just replicate the steps they took to get there. This includes owning real estate.  

It’s undeniable that nearly all millionaire’s own property, which is great evidence of the benefits of real estate investment – what a statement about the ability of property to grow and sustain wealth!

Learn more: are you ready to become a property investor?

The Social Good of Property Investment

Sometimes, property investors are the targets of bad press in New Zealand’s mainstream media. This seems mainly due to misplaced anger over years of house price increases – where some in the media or political circles blame investors. (Prior to that, blame was often placed on foreign buyers, though a ban on foreign buyers saw house prices rise even faster!)

However, especially if you’re building a new home or dwelling, investing in property can in a small way help to address one of the key social issues in New Zealand – a lack of housing. In this way property investment can be seen as a positive social effort.

Property investment also meets a key need: many people opt to rent as they have good reasons not to buy a property where they choose to live, or simply need somewhere to live while they save up a deposit for their first home.

Support from Financial Institutions

Property investment enjoys the support of financial institutions, making it possible for investors to leverage their capital.

This is a huge advantage, as it means property investors get to invest with someone else's money.

In fact, the whole banking system seems designed to support real estate. In New Zealand, 80 percent of all bank lending is towards property. The willingness of banks to lend for real estate transactions opens doors for individuals to enter the market with a sizeable investment, a feature stocks usually lack.

This also means leveraging your position. When you buy one property (your first home) as your property's value steadily increases and your mortgage decreases, your equity position strengthens. You can use the equity in one property as collateral to finance the purchase of additional properties, leading to diversification and portfolio growth.

This favourable lending environment can provide aspiring investors with the means to jumpstart their wealth-building journey.

Rental Income

Investing in real estate isn't just about waiting for property values to rise – it's about receiving passive income.

New Zealand's property market has historically provided investors with measurable and reliable rental yields. That is to say, a steady stream of income.

Shares can also provide a similar form of income in the form of dividends – surplus profits regularly returned to shareholders. There are several crucial differences to note between dividends and rents though:

  • Unlike the volatility of share dividends, consistent cash flow from rental income can provide a source of passive income that contributes to long-term financial security and wealth accumulation. In contrast, when it comes to stocks, regular dividend payments are commonly the first thing to be ceased, or at least reduced, if a company experiences the slightest challenges – such as changes in market conditions. This means dividends are nearly always more volatile than rents.
  • Most property managers pay property investors their rental income fortnightly or monthly, while shares might only pay dividends once or twice each year. A year is a long time to wait if you’re relying on that income to pay your regular bills!

Though before you think rents are superior in all ways to dividends, keep reading the next section.


Now we’ve scanned over the main advantages of real estate, and in doing so have highlighted some of the weaknesses of stocks, let’s take a deeper dive into the advantages of stock investing.

Dividend Income From Stocks

While dividend income is surely more volatile than rent paid on investment properties, dividend income does provide some advantages over rents:

• If you’re a property investor, there is always a chance that the tenant does not pay rent, or you have lengthy periods where a property is empty. You also need to subtract your expenses (such as repairs, insurance, and management fees) from rental income. There are no similar drawbacks with dividend.

• Over a long period of time good companies are almost certainly going to grow their dividends faster than a property investor can raise their rents. This is because good companies should be able to use their retained earnings (earnings not paid to shareholders) to re-invest in the business and lead to future dividend growth. There is even a formal list of dividend aristocrats, which are massive companies with a track record of at least 25 years of dividend increases – you read that correctly, at least 25 years! To be called a dividend aristocrat, companies must also meet a range of other criteria including liquidity and size.

Stocks Often Pay You, Real Estate Often Costs You

Most, but not all stocks pay a dividend. So, it’s fair to say most stocks will put money in your pocket.

Crazy as it sounds, most real estate investing in New Zealand regularly takes money out of your pocket. That is to say, for many years the property needs to have a top-up from the property investor to help cover the mortgage interest, principle mortgage repayments, council rates, insurance, upkeep, a property manager, compliance, and so-on. This is because the property doesn’t generate enough of a rental yield to pay for all those things right away. This is called negative gearing.  

Stocks Lack Regulatory Pressure

There has been a lot of heat on property investors over recent years.

  • Rental properties must be maintained to recently-launched healthy homes standards. This includes better ventilation, heating, insulation, and draught stopping, all with multiple compliance deadlines. These standards aren’t locked in either – they have already changed – so property investors need to pay attention to keep up.
  • Unlike every other business or investment, mortgage interest is no longer a tax-deductible expense for property investors. This can significantly affect the cost of owning rental properties.
  • New intensification rules should enable greater supply of housing in urban areas. Greater housing supply should, in theory, keep house prices in check. Though the practical implementation and flow-on effects of these policies largely remain to be seen.
  • Repeated changes to the Credit Contracts and Consumer Finance Act (CCCFA), have made it harder to borrow money. While this doesn’t single-out property investors, as one of the central benefits of property investment is the ability to leverage, these changes do make leveraged real estate investments more challenging.

Investing in stocks doesn’t face any of these setbacks.

Stocks: Opening the Door to New Investors

The largest hurdle for most to invest in real estate is obtaining a mortgage, which includes meeting the threshold for a deposit (i.e., having the deposit in the first place!).

The allure of real estate investment in New Zealand gained momentum in the late 1970s, when the ratio of house price to income hovered around two times the median household earnings. Today, mortgage repayments are eating up a large proportion of Kiwis’ income. According to the latest CoreLogic Housing Affordability Report properties in New Zealand are now valued at 7.2 times the average household income, down from 7.8 six months ago, but still above the long-term average of 6.1.

In contrast, the stock market has nearly no barrier to entry and can be initiated with a tiny sum of money on the latest stock-trading platforms.

Investing more each payday is also easy with stocks. If you have a spare few hundred dollars each week or fortnight, you can simply invest it.

Learn more: How to start investing in shares

Easy Diversification

Shares provide an unparalleled ease of diversification, allowing you to spread your investments across various companies, industries, and sectors of the economy. This strategic approach minimises your exposure to individual company risk and enhances your overall portfolio resilience.

If one sector faces a downturn, your other investments can potentially cushion the blow, reducing the impact on your overall portfolio.

While real estate offers stability, it does come at a cost. Pouring a large portion of your wealth into a single asset – one investment property (or even a handful of them) – exposes you to concentration risk. A retail property investor must accept the fact that headlines reporting average property price increases, usually tracking an index of housing across the whole country or city, do not capture the price movements of an individual property, and certainly don’t capture the individual risks inherent to buying a particular property. Put simply, in the face of random events negatively impacting a low percentage of houses, national or regional house price changes do not necessarily reflect the risks that individual investors face once they realise their housing assets are negatively impacted by, unexpected leaks, bad tenants, earthquakes, or extreme weather events.

The Social Good of Stocks

When you invest in the stock market, you’ll usually buy stock from another person or entity. While the money you paid goes to the seller and not directly to the company, the liquidity and pricing of shares in the market can have indirect effects on the company's ability to raise capital and achieve its growth and development goals – including mergers and acquisitions. A thriving stock market can create a positive ecosystem for businesses, investors, and the overall economy.

You might also directly participate in capital raises in initial public offerings (IPOs). In both cases, the company directly receives the funds from investors purchasing these new shares. This capital can be used for various purposes such as research, development, expansion, and innovation. Obviously, this is great for the overall economy.

Stock Liquidity

Liquidity, the ability to quickly convert an asset into cash, is a significant advantage that stocks bring to the table. You can usually buy or sell shares in a matter of seconds with a few clicks.

This liquidity is especially valuable when the unexpected arises. It doesn’t necessarily have to be a “bad” unexpected event either: how would you feel if a great investment opportunity arose, such as being a cornerstone investor in a trusted family members’ business to help fund expansion, but you couldn’t access any funds fast enough to invest because all your money was tied up in investment property?  

Real estate investing is not known for its swift exits. The process of selling a property can be lengthy and complex, involving agents, finding a buyer, navigating legal processes, and dealing with associated costs. Selling an investment property within 10 years of purchase will usually also trigger the imposition of the New Zealand property capital gains tax called the “bright line test”. No similar test occurs with stock investing.

Less Management Required

Investing in stocks requires less hands-on management than real estate.

Once you've set up your brokerage account and chosen your initial investments or invested in a share fund, you won’t be getting a phone call to say your tenant has moved out and then scrambling to find a new tenant.

Passive investors can also opt for index funds or exchange-traded funds (ETFs), spreading their investments across a broad range of companies and making the investment process even easier.

Conversely, property ownership isn't all passive income while the owner sits back and collects the capital gain. From dealing with repairs to handling tenant-related issues, the responsibilities associated with real estate investment can demand time, effort, and financial resources. A good property manager can ease a lot of these struggles, though sometimes you might even experience issues with the property manager!

Stocks Offer Global Opportunities

New Zealand is a great place. Though whether we like to admit it to ourselves or not, New Zealand is a tiny nation, isolated from the rest of the world, vulnerable to natural disasters and weather events, with lagging national productivity, and without any obvious advantage when it comes to the newest technologies or artificial intelligence (“AI”) sweeping the globe.  

As the world rapidly changes, partly because of advance technologies such as AI and machine learning, the stock market enables individual investors to benefit from such advances directly by investing in companies which are most likely to benefit or lead the way with this transformation. In short, the stock market offers a wider array of better opportunities, which means…

Stocks Offer Better Returns

To best illustrate how the stock market outperforms property, let's delve into a head-to-head comparison of two simple investment scenarios, one in the stock market and one in the property market.

30 years ago, you had a total of $200,000 to invest. You purchased a $100,000 New Zealand house and invested another $100,000 into the S&P500 (the most well-known and commonly-invested stock index worldwide). Today, you have:

  1. $1,697,973 in the stock market, and
  2. A property worth $607,765.

(Savvy readers will note this example avoids all sorts of other matters such inflation, buying or holding costs, taxes, and so forth, but let’s just keep it simple for the purposes of illustration!)

Why such a big difference? Because over that 30-year period the S&P500 provided a return of 9.9% annually, while the New Zealand property market averaged about 6.2%. 3.7% per year, the difference between these figures, might not seem like much, but over a long period of time – which is how long most investments are held for – this difference compounds.

This is precisely why most businesses, including those listed on the stock market, don’t own their own premises – they can obtain a higher rate of return by reinvesting in other opportunities to grow their company.

All Billionaires Own Stocks

It’s true that nearly all millionaire’s own property but it’s also true that all billionaires’ own stocks! That’s what made nearly all of them billionaires in the first place.

In fact, the world’s wealthiest man, Elon Musk, chooses to be a tenant instead of a property investor. In fact, Musk owns no real estate at all. But, he is the biggest shareholder in several companies, including Tesla.

The Bottom Line: Why Not Invest in Both?

When considering the investment superpowers of real estate and stocks, it's evident that each has its unique strengths and advantages.

While real estate offers the ability to use debt to fund the purchase and tangibility, stocks shine in terms of diversification, liquidity, and probably a better unleveraged return.

However, why limit yourself to just one side of this dynamic contest when you can harness the benefits of both asset classes?

Investing in both real estate and stocks enables investors to diversify their asset base, making themselves more financially resilient in our rapidly changing world.

Ultimately, the battle between real estate and stocks doesn't have to end with a single victor.

Savvy investors can make the most of the unique strengths of both asset classes to build a well-rounded and robust portfolio that stands the test of time and delivers the financial freedom they deserve.

It’d be the pleasure of one of our trained professionals to help you work through any of the topics mentioned above, so get in touch today.

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