Is buying a home the best investment you’ll ever make?

House prices are soaring, but investors rarely consider the hidden costs and the benefits of a more diversified investment strategy.

If you’ve been to a property auction lately, you’d be forgiven for thinking you were somewhere on Wall Street during the booming 1980s.

Frenzied flocks of potential buyers shift nervously and eyeball potential rivals. A combination of manic phone calls and panicked whispers flow through the crowd, driven by a market boom and that all-too-familiar FOMO feeling.

It’s cutthroat out there – and no wonder. CoreLogic’s monthly home value index rose 2.8 per cent in March — the biggest monthly growth since October 19881. But are these dizzying returns all they’re cracked up to be?

Over the longer-term, national housing prices rose by 412 per cent between 1993 and 2018, according to CoreLogic2. In comparison, the ASX All Ordinaries index (a broad indication of the Australian stock market) had risen by just 261 per cent.

Don’t forget transaction costs

However, most property investors forget about the buying and selling costs involved in property.

It costs thousands of dollars for conveyancing fees, building and pest inspections, mortgage application fees, as well as transfer and registration fees. Mortgage insurance, which protects the lender if the borrower defaults on the loan, is mandatory if the borrower has less than a 20 per cent deposit.

But stamp duty is invariably the major cost. While most States offer some stamp duty exemptions or concessions for first home buyers and others, most people must pay the full tax.

The median NSW house price of about $1.3 million currently attracts stamp duty of approximately $60,000, according to a Domain housing report3.

Don’t forget the hidden cost of maintenance and renovations

Properties don’t maintain themselves – property owners quickly become acquainted with electricians, plumbers and a host of other tradies that can charge big bucks.

The median spend for home renovation projects was $20,000 in 2019, but 10% of homeowners spent $150,000 or more, a report by Houzz and Home Australia found4.

Roy Morgan Research CEO Michele Levine says homeowners typically renovate within a year of buying.

“This suggests that they have recently purchased and moved into a home previously owned by someone else and are making their own mark on it,” Levine said while presenting the fndings5.

Roy Morgan Research found that 8.4 million (or 62%) of Australia’s 13.6 million homeowners undertook renovations in 2016 – up from 7.5 million three years earlier. More recently, the government’s HomeBuilder grant has helped re-ignite a renovation boom.

While renovating your house can improve its value, it can also leave a serious dent in your returns. The Roy Morgan report also found 39 per cent of renovations ran over budget.

Think about diversifying, and don’t forget shares

Most people forget how long they own property – they only look at the initial price they paid and the final sale price. They rarely include costs and work out the true annual return, which would make a fairer comparison with the share market.

An analysis of Australian residential property returns by the ASX and Russell Investments in 2018 found it was the best performing asset class over the long-term6. However, it was also the worst performer (below cash and Australian bonds) in 2004 and 2005.

There’s money to be made in both property and stocks. Australia has had a solid run in both asset classes for many years.

However, investors should consider diversifying their investments rather than overloading on property, no matter how much the market may be booming in the short-term.


If you have any concerns about property, stocks or your portfolio’s diversification, contact our office today and speak with your adviser.


1 National home value index rises at its fastest pace in 32 years. (2021, June 02).

2 25 years of housing trends | Go straight to Aussie. (2021, May 13)

3 Razaghi, T. (2021). Sydney house prices soar to record median of $1.3m after fastest quarterly rise in 28 years. Domain.

4 2020 AU Houzz & Home Renovation Trends Study.

5 Renovation Nation: home improvement in Australia. (2021, June 02).

6 2018 Russell Investments/ASX Long Term Investing Report.

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