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Property beats stocks
By Jacquie Hayes
February 19, 2003

THE cherished view that shares always outperform property in the long term has been tested again: new research shows equities do worse than second best.

Using performance data for 11 asset classes, a study by Atchison Consultants found that equities were one of the poorest performers over the past 15 years.

Returns from direct property not only outran those of Australian and international shares, but they did so with less than a third of the risk, the study commissioned by the Australian Direct Property Investment Association found. Residential property was the best performer, producing a 13.6 per cent return.

Retail property came next with 12.6 per cent, followed by industrial property (11.3 per cent), fixed interest (10.7 per cent) and listed property (10.1 per cent).

International shares produced the third lowest return at 8.1 per cent but at the second highest volatility (risk) rating of 15.3 per cent.
Australian shares didn't do much better, scoring the highest volatility reading at 18 per cent with only a modest 8.4 per cent annual return.

But asset consultants say the results are not surprising given that the period measured was the worst for local and international shares. InTech Financial Services chief investment officer Ron Liling said the Atchison study's sample period started just before the October 1987 share market crash and ended after more than two years of negative share market returns. "So it starts at the top of the market and ends at or near the bottom," Mr Liling said.

A more appropriate period, he said, would be one that started and ended at the same point in the cycle.

"Therefore, a 20-year period which starts after the bear market of the early 1980s and ends today would be more appropriate," he said.

Very different conclusions would have resulted, with Australian shares returning 14.1 per cent, global shares 13.5 per cent and property 9.2 per cent, according to InTech.

Over the past 25 years, rolling 15-year periods would have shown shares outperforming property over 90 per cent of the time, Mr Liling said.

"And not just the worst, but worst by a long way," he said.

Atchison Consulting managing director Ken Atchison said the survey results highlighted the caution investors needed when making decisions on commonly held perceptions of long-term performance.

He conceded that even over the longer term, statistics could misrepresent the reality, depending on the period measured. But he said similar research in the US confirmed that share investments did not necessarily outperform other asset classes in the longer term.

"There have been several 20-year periods of poor stock market performance following historical market highs on a price-earnings ratio basis," Mr Atchison said.

He defended the research as sound, saying the time frame chosen was relevant.

"We've taken a 15-year view on the basis that this is the full cycle for property investment - from peak to trough to peak again - and we think that time is valid," he said.

The Australian