BrickX and Shares vs Property in Australia

An online ad has recently made me aware of BrickX, which offers Australians the opportunity to buy “bricks,” which represent fractional ownership of residential real estate.

In Australia, many people are convinced that property is a great investment, but I have always believed that shares are better. In the shares vs property argument, most people claim that property is safer than shares, but there is no proof for this. The safety of shares depends on the underlying business. Shares are nothing more than ownership of some business. For example, if you own Commonwealth Bank (CBA) shares you own a portion of the CBA business, which entitles you to a portion of its profits in the form of dividends. If you own enough CBA shares, you can wield enormous influence by e.g. voting in directors. The bottom line is that shares are only safe as the underlying business. Residential real estate is also a business, but that business is houses. If you created a company, use that company to buy a house, and then list that company on the stock exchange, the shares for that company should in theory be exactly the same as directly buying residential real estate taking into account any costs of listing the company or any economics of scale gained.

The launch of BrickX allows people to buy residential real estate in a similar manner to buying shares.  The video below provides a perfect introduction to BrickX.

In my opinion, one of the main problems with residential real estate is that they provide very low yields, and a listing of the properties on BrickX clearly show this, with rental yields of around 1 to 3 percent.

brickxpropertydetails

Of course, someone could argue that even though rental yields are low, the historical growth of around 6 to 9 percent per year in capital gains is impressive. But it is not. For example, STW, an ASX200 ETF, has historically returned 9 percent per year over the last five years with dividend yield of 5 percent. Commonwealth Bank shares have returned 8 percent per year in capital gains with a whopping 7 percent dividend yield.

cbasharesasofoct2017.jpg

Not only are yield and capital gains better for shares, but there are huge tax advantages for shares versus property. The dividend yield of CBA and STW have franking credits baked in, allowing you to reduce taxes. Many people believe that property has an inherent advantage through negative gearing, but negative gearing is available via shares and ETFs as well. It is possible to negatively gear into the stock market. First-time buyers of property can get a first-home-owners grant, but property buyers must pay stamp duty. Those buying shares or ETFs do not pay any stamp duty. Furthermore, property buyers pay tens of thousands in real estate agent commissions as well as conveyancing. If you own an investment property you must pay land tax and capital gains tax. If you don’t own an investment property you don’t pay land tax or capital gains tax, but this doesn’t put you ahead because then your property becomes a PPR, which means you cannot rent it out, which is a loss. Not paying capital gains tax also doesn’t put you ahead compared to shares because shares can be sold in small amounts, which means that when you retire you can sell small amounts of shares so that any capital gains put you below the tax-free threshold, meaning you pay either nil or minimal CGT. Then there is the insurance costs, council rates, and general maintenance costs associated with property.

3 thoughts on “BrickX and Shares vs Property in Australia”

  1. Good question…I prefer Shares as you have more control IMO of outcomes, but I do believe exposure to property through shares ie AREIT’s , ETF’s are part of a balanced portfolio and I also have small amount of money in Latrobe who are a mortgage fund and pay monthly returns. If you are looking for big growth then owning/selling property is the way to go but it does mean big capital for a startup.
    I want income so ETF’s like VAP, AREITS like ARF, and Funds like Latrobe give me that without the hassle of being a landlord, house flipper, buying into developing etc…
    Most property AREITs dont provide any franking credits so you could argue your money is better in other areas like Financials but I like my diversity and most AREITS, ETFs are paying divvy yields at around 5% plus and quarterly payments….which when you income split with my wife like I do still make a nice return IMO.
    Another trick with AREITs is that some pay quarterly in those odd months of the year when other companies dont pay Dividends, so a few well chosen AREITS can provide you with Divvy payments every month on a alternating basis…just on choosing AREITS….you need diversity in those too…I like the ones that own Childcare centres, Health Buildings etc….less keen on the Office space variety which I think will get into trouble down the track.

    Liked by 1 person

  2. Interesting argument. I think for the majority of people, they may feel that an investment into property is more “tangible”. Since it an asset that you can see and touch, even though their returns are lesser compared to shares.

    Liked by 1 person

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