When it comes to putting your money to work, there are lots of options. Two of the most talked about contenders vying for our attention in New Zealand - especially in the media - are investing in property and the share markets. So what’s better, and should you invest in property or stocks?

Why has property been such an aspirational investment?

In the late 1970s, investing in property started to gain momentum when house prices were cheaper relative to salaries. In fact, the ratio of house price to income was around two times the median household income. By the mid 1980’s Rogernomics arrived, bringing with it deregulation of banking, and removal of controls on lending and interest rates. People were then able to borrow larger sums to buy a property, rent it out in almost any condition (no such thing as Healthy Homes standards until 2022) and benefit from tax-free capital gains when they sold it. When it came to choosing between property vs shares, it was almost a no-brainer. 

As reported by Stats NZ, at the year ending June 2022, the average annual household income was $117,126, while average house prices were around $989,790. That’s a ratio of 8.45. New Zealand house prices have fallen more than 10% between July 2022 and July 2023, which brings the ratio down to around 7.5. But that’s still far above the glory days of the 1970s when the ratio was just 2.

Property has also been what’s considered a ‘tangible asset’, which means it has a physical address, and you can see and touch it. And with Kiwis having DIY in their DNA, property investors may benefit financially from the physical work they put into house maintenance and upkeep. 

But with tighter regulations, higher costs, and less potential for large capital gains, the ‘golden age’ of Kiwi property ownership looks increasingly like it may be coming to an end. So, are shares better than property? Or is property better than shares? 

Share market investing has gained new fans

The 1987 stock market crash saw a lot of Kiwis caught in the fallout, and put many off investing in the stock markets for years. But since then there’s been a sea change in the way Kiwis invest. While once some people looked to owning property for their retirement payout, when 2007 rolled around, along came KiwiSaver. KiwiSaver is New Zealand’s voluntary savings scheme aimed to help people put money aside and invest for their future. Today more than three million New Zealanders have signed up to it. Despite expected ups and downs and a sometimes volatile share market, KiwiSaver has shown that over time investments have been able to provide returns and help build long-term wealth. 

Since around 2016 New Zealanders – particularly younger Kiwis – have embraced the opportunity to invest in the share markets. By buying a slice of the companies that they use and love, and hoping that as the companies grow profit over time, they - as investors - can share in the success over the long term. 

With retail investing now more accessible, New Zealanders have increased exposure to investing in shares. There are so many finance and investing podcasts, social media accounts, YouTube channels and websites that help people to understand how the share markets work, how to research shares, and to buy and sell shares in a company. Yep, it’s become simpler, cheaper and quicker than ever!

How much cash do you need to invest in property, vs shares?

While $300 NZD could buy 20 litres of paint, a basic bathroom vanity or a block of cheese, it’s not going to get you an investment property. Fractional shares make investing in stocks more affordable. And while co-ownership in a house is technically a fraction of an investment, fronting up ½ or even ¼ of a house deposit requires significantly more cash than the cost of most shares on the share markets today. So how much do you need for an investment property deposit in NZ? 

The median house price in NZ in mid-2023 was$780,000 NZD at a time when most banks required a minimum 35% deposit from people looking to buy an investment property. Based on that number being more-or-less true today, that’s potentially around $273,000 NZD in cash and spare equity in your current property that you’ll need to find to get the deposit required for a rental property in NZ.

Many share trading platforms in New Zealand don’t have minimum investment requirements, which means shares are a more accessible option when you don’t have a lot of money to begin with. To help you decide how much you’ll need to get started investing in stocks and shares it pays to look at fees on any platforms you choose as it can have a significant impact on your returns in the future.

What have property law changes meant for investors?

Giving tenants safer and more secure housing? Check. More responsibilities for landlords? Check!  

Since 2019, there have been changes to New Zealand laws that have been likely to affect property investors: 

• Rental properties must be maintained to the 2022 Healthy Homes standards. This includes better ventilation, heating, insulation and draught stopping, all with multiple compliance deadlines. 
• Mortgage interest is no longer a tax deductible expense. This can significantly affect the cost of owning rental properties. 
• Changes to the bright-line test mean landlords may pay up to 39% of the capital gains in tax if they sell a property that’s not their main place of residence within 10 years of ownership.  

Property investors have to adjust their expectations around rental profits. This is because it becomes increasingly difficult to find a property that can cover all the expenses through rent only. This includes:

• Mortgage repayments 
• Insurance 
• Maintenance and repairs
• Property management fees (or your own time) 
• Cash reserves in case of missed rent or vacancies 
• Rates 
• Body corporate fees (if in a multi-unit) 

Being a landlord is definitely not always a hands-off investment! It can sometimes be time consuming, and some people may find it stressful. Owning property can include jobs like:  

• Monitoring ongoing rent payments 
• Quarterly property inspections 
• Finding and vetting tenants 
• Managing maintenance requests 
• Filing tenancy contracts and bonds 
• Dealing with disputes and evictions (which also got more difficult with changes to tenancy laws) 
• Paying tax on rental incomes

Property owners can of course hire a property manager. But they need to make sure they set aside up to 5-10% of rental income as a baseline fee to cover costs. Add to this the recent changes in lending restrictions on investors, people looking to own property now need a 35% deposit to buy. And for some, that may be a heavy hit! 

Perhaps it’s no wonder that since 2021, landlord numbers have declined. The number of Kiwis who own at least one rental property has dropped by 8% since 2015, according to MBIE data.

Pros and cons of investing in shares vs property:

*Past performance does not equal future performance

Property still punches hard

Considering all this information, why might property investing still be where so many people choose to put their money? One reason is familiarity. It’s easy for people to understand buying and selling a house - that tangible asset. We’ve all lived in houses, many of us have been tenants in someone else’s house, and we’ve seen other Kiwis make money - sometimes huge chunks of cash - when they sell. Investing in property vs shares has often meant going with what you know, while in comparison, share market investing may have seemed less familiar.  

Plus, the share markets can be a bit bumpy. Most share markets have ‘corrections’ where share prices can drop by 10% on average every 16 months. A fall of 20% is called a bear market and happens on average every four years. But keep in mind, even with these bumps, over the long term, the share markets have historically gone up on average 10% each year.

And the winner is…

Property investing may make sense for some folks, and we think it’s important to diversify your portfolio by spreading your money across a range of investments. But when it comes to investing in a rental property, tens of thousands of dollars are needed up front for an investment property deposit in NZ (and then you’ll have the lawyers’ fees) and there’s no guarantee of a big cash profit when it comes time to selling a property, as the 2023 markets showed. While the same ‘no guarantee’ of profit can be said for share market investing, it has lower up front costs and, thankfully, doesn’t ever need the roof fixed or the lawns mowed. 

The same investing strategies can apply to both property and shares

So how can you set yourself up for investing, whether you choose property or shares? 

• Don’t put all your eggs in one basket – if you aren’t sure if you want to invest in property or shares, choosing a mix of both can be a way to diversify your investments.
• Pay yourself first – commit to investing regularly, just like you’d commit to regularly paying a mortgage on a rental property, even if it’s only a small amount.
• Invest in yourself – learn while you go - the more you know, the better you’ll be when you hit bumps along the way.  
• Have the best of both worlds! - you can invest in the property industry through REITs (Real Estate Investment Trusts) on the US share markets. 

Read more about REITs

If you’re considering investing in the share markets, a simple way to learn the basics is to spend 10 minutes a day for 10 days on our free beginner investor’s Getting Started Course, and browse our investing articles that help you learn how to research shares. 

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Watch: The Great Debate - Property and Shares

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