This Thursday, Hatch will be hosting The Great Debate – a webinar on the merits of property and shares investment. We spoke to the debaters and asked some of the questions that are likely to come up.
Both the property market and the world of shares are bedevilled by enough mystery, myths and misconceptions to send potential investors running for the hills – or crypto. But for those fortunate enough to have some savings or extra disposable income, there’s a lot to be gained from putting money in either world. You just need to understand the realities.
This Thursday, Hatch will be hosting The Great Debate – a property and shares webinar that will aim to explain their respective values and risk for investors and answer the burning question: what is the most lucrative, stable and ethical investment?
As a taster, The Spinoff spoke to Hatch’s great debaters: Natalie Ferguson, head of experience at Hatch, and Darcy Ungaro, financial adviser at Ungaro & Co.
With Ferguson in the sharemarket corner and Ungaro backing property, we asked the pair some of the most pertinent questions that surround the contest, which seems to capture not just New Zealanders’ pecuniary priorities, but their core values too.
Obviously, with New Zealand in the middle of a housing crisis, there is significant controversy around the idea of property investment. However, that fact remains that with many people actively engaged in the practice, they need to be made aware of the facts.
Natalie, why do you think investing in the share market might be better than property?
There’s a much lower starting amount for a start. Anyone can buy shares now with as little as $100, which is quite different from the $900,000 average New Zealand house price.
It’s also much easier to buy and sell shares as there are much lower fees – through Hatch it’s just $3. Even if you buy 300 Tesla shares worth hundreds of thousands of dollars, it’s still just $3 to sell them. Compare that with the $30,000 it costs to sell a house at the same price.
And I suppose the last one for me is there is no maintenance like there is with home ownership. When you have shares, they actually manage themselves without any extra input.
Darcy, why do you think property is a better investment than shares?
I would probably say property investment is a better choice as a first step towards growing wealth. It’s a logical step for a property owner to buy another property as an investment, especially if they’re relatively young, and they’ve got a decent time frame in front of them. It’s not because property is better, but just simply because of that thing called leverage, which just amplifies market movements in a way that you just don’t seem to get with shares.
Darcy, but aren’t shares more appealing because they’re accessible, whereas high house prices mean property as an investment is out of reach for so many people?
Yes, accessibility is the number one issue with property ownership, whether it be your own home or an investment property. That’s where shares beat property every day; the barriers to entry are just so much lower.
With these new platforms, you can buy a fraction of a share. Whereas with property investment, you can’t buy a fraction of a property yet. To buy a share in Apple or Tesla, you just download the app, go through some ID checks, and off you go. But to buy a house, you have to have a job, you have to have good credit, you have to have a deposit, you have to have all these things that will automatically exclude a huge portion of society.
I see a time coming possibly in the next five years where property investors or even homeowners can fractionalise their own home and buy units of property. When it does, that will solve some of the inaccessibility problems. As soon as we can make property divisible and fractionalise it, the sooner more people will be able to access it.
Natalie, a lot of people have the perception that investing in shares requires a lot of research, such as reading product disclosure statements or paying close attention to the Dow Jones, whereas owning a house seems a lot simpler. How would you respond?
I think that’s one of the biggest myths holding New Zealanders back. When you buy a house, think about all the research you need to do into things like house prices and builder’s inspections. There’s a huge amount of work to put into it.
With shares, that stuff about watching the Dow Jones is total rubbish. I have never tracked the Dow in 15 years of investing. All you need to do when investing in shares is look around at these giant global brands like Apple, Nike, Tesla and Amazon, and ask yourself about whether or not you think those companies might still be around in 10 or 20 years, and whether or not you think they’re going to keep growing.
I don’t need to do a lot of research to see that my friends are all buying iPhones and Macbooks and won’t touch a PC. I don’t have to open Apple’s annual report to see that people are queuing outside their stores.
Darcy, do you think it’s easier to research property investment compared with shares?
I think the comparative advantage lies in the fact that when we look at property, we bring more of ourselves to the table.
With shares, we try to put on this investor’s hat, where we feel like we need to investigate the price-to-earnings ratios and all that sort of stuff. And if we don’t, we feel like we’re failing, because we’re not being an intellectual share investor.
Whereas with property, it’s like we allow ourselves to bring all of ourselves, specifically our emotions, because after all, it’s a home. Even if it’s not our own home, we’ll still look at it through two lenses, and one will be an investment mindset. We’re a little more congruent with ourselves when we’re property investors. We appreciate not just the numbers, but also just the feel of a property. And I think that’s what puts the advantage squarely with property investment as a vehicle.
Natalie, many people have the perception that the sharemarket can be quite volatile and subject to external economic circumstances that are beyond anyone’s control. Are these concerns valid?
Again I would say perception is quite different from reality. A key difference between shares and property is the transparency of information. Anytime someone walks past your house, your property price changes, because it’s how much they’re willing to pay for it at that moment. And it’s the same with shares, it’s just that we publicise the value.
Of course there was a massive drop in the market when we went into lockdown. But by the end of the year, many of those shares had recovered.
I don’t think anyone who’s buying property would say that house prices are stable. By the time you’ve looked at two open homes, $20,000 has probably been added to the average price.
Darcy, would you say that property investing is more stable than share investing?
I think property seems like the safer investment. It’s a home first and foremost, and we know instinctively that the home is the most important thing; we all need to go back somewhere and go to sleep somewhere. And we know there’s always going to be, fundamentally, the demand for that good.
With all these technology and rideshare companies and startups you can invest in, we don’t really instinctively understand them, because it’s a step beyond just thinking about the basic need of food and shelter. And I think that’s probably why when times get scary out there, we naturally go to what we feel most comfortable with. Property feels safer in a pretty scary world.
Darcy, with house prices throughout New Zealand inflating at the same rate, isn’t the idea of property wealth for homeowners something of an illusion? After all, if you sell your house for a good return, it’s virtually impossible to use it to buy another house in the current market. So, other than owning a rental, what’s the point of that wealth if you can’t use it?
That’s why many advisors will always suggest that you exclude your own home from any sort of investment calculations. But it does have this secondary effect that it makes you feel more wealthy, which makes you more likely to spend.
Natalie, your rebuttal?
When you sell shares for a profit, you don’t have to buy another bunch of shares to live in. Generally the difference with companies and houses is it’s not all the same market. So I could sell my tech shares for quite a profit and then have the benefit of being able to move between industries. With property investment, you’re locked into one market.
Natalie, some potential investors feel that with large companies like Apple and Tesla, the best of the growth has already happened, and it’s too late to get in now. Do you agree?
No. In 2021, the earnings revenue of the 500 biggest companies in the US share market grew by 74.2% year on year, the highest growth since 2009 . So there’s absolutely no limit to how big a company can grow. Do you think that Netflix will stop innovating tomorrow? Or do you think that they’re going to continue to come up with ideas and things that continue to change the world?
Darcy, with such a chronic housing shortage, investing in and owning multiple properties is seen by many as unethical and actually quite greedy. How would you respond?
People have shied away a little bit from property investment in the past 12 months because they feel it’s causing social harm. And I think there’s some truth around the edges, but I wonder if there’s a little bit of spin that’s gone out there to make people feel bad about investing in property.
In reality, to be a truly socially responsible investor, you need to be a socially responsible person. The vast majority of property investors that I know are very socially responsible. That’s one of the reasons why they like investing in property – they like getting to know their tenants and helping them out and actually providing good quality accommodation.
It all depends on the investor. The difference with shares is that you can be an incredibly unscrupulous person, but invest in environmentally friendly options, and be deemed to be a socially responsible investor. And I think that’s a little bit disingenuous, to put it mildly.
Natalie, some of the world’s biggest corporations have been known to be incredibly unethical. How does someone ensure their money is going towards a socially and environmentally ethical investment?
Your ethics and my ethics could be very different. I might be comfortable with investing in gambling companies or in a big resort in Vegas and that might horrify you. The first step is to get an idea of what your ethics are and don’t be so hard on yourself.
And then the second thing that’s really, really easy is this concept called ESG, which is environmental, social and governance. That basically ranks each company on a score of how much they are adhering to those things, allowing you to make the investment that aligns with your values.
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This content was created in paid partnership with Kiwi Wealth. Learn more about our partnerships here.
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