It's one of the most debated questions in New Zealand personal finance circles: should you invest in property or shares to build wealth? Walk into any workplace lunchroom or dinner party, and you'll likely hear passionate advocates on both sides. Some point to New Zealand's property millionaires as proof that bricks and mortar is the only way. Others reference international data showing shares outperforming property over the long term.
At Luminate Financial Group, we encounter this question frequently from clients navigating their wealth-building journey. The truth? It's not as simple as declaring one universally superior to the other. Both asset classes offer distinct advantages and face unique challenges. The "better" choice depends on your personal circumstances, goals, risk tolerance, and investment timeframe.
Let's explore both options objectively to help you make informed decisions about your financial future.
Before diving into comparisons, it's important to understand what we're actually comparing.
When we discuss property investment, we're typically referring to purchasing residential real estate with the intention of generating rental income and benefiting from long-term capital appreciation. This might involve buying a rental house, apartment, or townhouse in New Zealand markets ranging from major cities to regional centers.
Property investment usually requires significant upfront capital (typically a 20-40% deposit for investment properties), involves ongoing management responsibilities, and generates regular rental income. The asset is tangible, illiquid, and subject to local market conditions.
Share market investment involves purchasing ownership stakes in companies, either directly through individual shares or indirectly through managed funds, exchange-traded funds (ETFs), or KiwiSaver. Share investments can start with minimal capital, require no ongoing management from you, and may generate income through dividends.
Shares are highly liquid (easily bought and sold), intangible, and subject to market sentiment, company performance, and global economic conditions.
Property's most significant advantage is the ability to use substantial leverage safely and affordably. Banks readily lend 60-80% of an investment property's value at relatively low interest rates because they view property as secure collateral.
This leverage magnifies returns dramatically. If you invest $100,000 as a 20% deposit on a $500,000 property that appreciates 5% annually, you've gained $25,000 – a 25% return on your invested capital. That same $100,000 in shares earning 5% returns just $5,000.
While you can borrow to invest in shares (margin lending), banks are far more conservative, typically lending only 50-70% against share portfolios at higher interest rates. The leverage available for property investment is unmatched by any other mainstream investment class.
Every mortgage payment includes a principal component that increases your equity. This "forced savings" mechanism builds wealth automatically through debt reduction, even before capital appreciation is considered. Many investors find this structured approach to wealth accumulation more effective than relying on disciplined voluntary saving.
Property's tangibility provides psychological comfort that shouldn't be dismissed. You can visit your investment, improve it, and see exactly what you own. This concrete nature helps many investors stay committed during market downturns when they might panic-sell more abstract investments.
Property also offers control – you choose the location, property type, tenants (within legal parameters), and how you maintain and improve the asset. This autonomy appeals to investors who want active involvement in their investments.
Long-term property investors benefit from New Zealand's absence of capital gains tax (outside the bright-line test period). Property held beyond ten years (five for new builds) can be sold without tax on appreciation, making it highly tax-effective for patient investors.
While some expenses face restrictions (particularly interest deductibility for many residential investments), other operating costs remain fully deductible against rental income.
New Zealand property has delivered strong returns historically, particularly in key centers like Auckland, Wellington, and Christchurch. Many Kiwis have built substantial wealth through property, and these success stories reinforce property's reputation as a reliable wealth-building tool.
International research consistently shows shares outperforming property over long timeframes. The global share market has historically returned around 9-10% annually over extended periods, compared to property returns typically in the 6-8% range (before leverage).
While New Zealand property has performed exceptionally well, particularly during certain periods, shares offer access to global growth opportunities, technological innovation, and diversification beyond our small domestic market.
A share portfolio can easily include hundreds or thousands of companies across dozens of countries and industries. Through a single ETF or managed fund investment, you can own pieces of global technology leaders, healthcare innovators, financial services companies, and consumer brands.
This diversification dramatically reduces the risk that any single company's failure or industry downturn devastates your portfolio. Property investors, particularly those starting out, often have significant wealth concentrated in one or two properties in one country, creating substantial concentration risk.
Shares can be bought or sold within minutes during trading hours. This liquidity provides flexibility to rebalance your portfolio, access funds during emergencies, or capitalize on opportunities quickly.
Property, by contrast, takes months to sell, involves significant transaction costs (agent fees, legal fees, potentially tax), and may require selling at unfavorable times if urgent liquidity is needed. This illiquidity can be both a blessing (preventing emotional decisions) and a curse (restricting access to capital).
You can begin investing in shares with as little as $50 through some platforms, making share investment accessible regardless of your financial starting point. Building a share portfolio gradually through regular contributions is straightforward and affordable.
Property requires substantial upfront capital – typically $50,000 to $150,000 or more for a deposit, plus additional funds for legal fees, building inspections, and establishing an emergency fund for maintenance. This high entry barrier excludes many aspiring investors or delays their investment journey for years.
Share market investing, particularly through managed funds or ETFs, requires minimal ongoing involvement. You're not dealing with tenants, maintenance issues, property managers, or unexpected repair costs at 2am.
This hands-off nature suits investors who prefer to focus on their careers, businesses, or lifestyle rather than active property management. The time freedom is valuable and often underappreciated when comparing investment options.
Quality dividend-paying shares often increase their distributions over time, creating growing income streams. Many established companies have track records of increasing dividends for decades, providing inflation-protected income that grows faster than typical rental increases.
Reinvesting dividends through dividend reinvestment plans accelerates compounding without requiring additional capital or transaction costs.
Rather than viewing this as an either-or decision, consider a more nuanced approach that recognizes both investment types have merit.
Your optimal investment approach may change throughout life. Young investors with limited capital, high incomes, and long timeframes might prioritize shares for their accessibility and growth potential. As wealth accumulates, property investment becomes more feasible and may offer diversification benefits.
Alternatively, some investors successfully start with property (perhaps using KiwiSaver for a first home that transitions to an investment), use equity growth to fund share investments, and gradually build balanced portfolios encompassing both asset classes.
Property and shares complement each other effectively. Property provides stability, tangibility, and leverage benefits. Shares offer liquidity, true diversification, and accessibility. A portfolio containing both potentially provides better risk-adjusted returns than either alone.
Many successful New Zealand investors hold diversified property portfolios alongside substantial share investments, capturing the strengths of both while mitigating weaknesses.
The "better" investment depends heavily on individual factors including your income level and stability, existing assets and debts, risk tolerance, time horizon, hands-on versus passive preferences, tax position, and financial goals.
Someone with a stable high income, appetite for involvement, and long time horizon may thrive with property investment. Another person with variable income, preference for simplicity, or need for liquidity might better suit share investment.
New Zealand investors face unique considerations. Our property market has historically outperformed many international markets, while our share market is small and concentrated in specific sectors (primarily financial services, utilities, and primary industries).
Most investment-focused Kiwis need international share exposure for meaningful diversification, introducing currency risk and additional complexity. Property investment, while geographically concentrated in New Zealand, provides local market expertise and currency matching with your living expenses.
While leverage amplifies property returns, it also magnifies losses and creates obligations. If property values decline while you're heavily leveraged, negative equity becomes possible. Interest rate increases can turn cash-flow-positive properties into cash drains.
Share investors using minimal or no leverage face different risks – primarily volatility and potential capital losses – but without the same obligation to service debt regardless of circumstances.
Successful property investment requires market knowledge, property assessment skills, understanding of tenancy law, and willingness to handle ongoing management (even with property managers). There's a learning curve and time investment involved.
Share investing, while requiring basic financial literacy, can largely be outsourced to professional fund managers through managed funds or automated through index investing, requiring minimal expertise or time commitment.
Rather than asking which is universally better, ask which is better for you right now. Consider these questions:
Do you have sufficient capital for a property deposit plus reserves? Are you comfortable with debt and leverage? Do you have time and inclination to manage property actively? Is your income stable enough to service a mortgage through market fluctuations? Do you prefer tangible assets you can control? Are you investing for the long term (ten years plus)?
If answering yes to most of these questions, property investment may suit your circumstances well.
Alternatively, are you starting with limited capital? Do you prefer simplicity and minimal involvement? Do you value liquidity and flexibility? Are you seeking maximum diversification? Do you want to start investing immediately rather than saving for years?
If these resonate more, share market investment might be your better starting point.
At Luminate Financial Group, we believe the property versus shares debate presents a false choice for many investors. Both asset classes have proven wealth-building potential. Both face risks and challenges. Both can play valuable roles in comprehensive financial plans.
Rather than choosing sides in tribal investment debates, focus on building diversified wealth aligned with your personal circumstances, goals, and preferences. For many New Zealanders, the optimal long-term strategy involves both property and shares, captured at different life stages or held simultaneously in balanced portfolios.
The most important decisions aren't property versus shares, but rather starting versus delaying, informed versus uninformed, and strategic versus reactive. Whichever path you choose, approach it with proper research, realistic expectations, and ideally professional guidance tailored to your unique situation.
Your wealth-building journey is personal. Choose the investment approach that you understand, that matches your circumstances, that you can commit to long-term, and that helps you sleep soundly at night. Sometimes that's property. Sometimes it's shares. Often, it's both.
What matters most is starting, staying consistent, thinking long-term, and building wealth in ways that serve your life goals rather than chasing status or following others' paths blindly.