The results of the latest survey, released by ASX today, revealed that residential investment property provided after-tax returns of between 11.4% and 9.3% per annum (depending on income bracket); while Australian shares returned between 8.1% and 6.1% per annum over the same period. This is the first time property returns have been higher than shares since the survey first commenced 12 years ago.
The ASX Investment Performance Report measures the pre and post tax returns on shares, listed property, residential investment property, fixed interest and cash over 10 years from 1 January 1994 to 31 December 2003.
ASX said that the result was not unexpected given that shares experienced two flat markets over this time, whereas the property market had enjoyed an unusually strong run from 1996 to late-2003.
Colin Scully, ASX Chief Operating Officer said: “The performance of the housing market over this period has been well documented, and these results were not unexpected. All markets move in varying cycles and investors, after seeking appropriate advice, would do well to consider diversification across a broad range of investments. Experience has shown that shares and property both perform well over the long term. We also note that shares remain highly attractive in terms of the income they can generate through dividends, which can be further boosted by franking credits.”
The report from Towers Perrin says; “Real returns have been particularly strong for residential investment property, listed property trust investments and Australian shares over this period”. Additionally, Towers Perrin point to recent changes to NSW property taxation, but do not expect to see the impact of these changes until the 2004 report by Towers Perrin. Towers Perrin also analysed the return of different investments over a 20-year period, from 1 January 1984 to 31 December 2003. Shares, residential investment property, listed property and fixed interest all produced after-tax returns well in excess of the average rate of inflation, which was 4% over this period.
Over 20 years, depending on marginal tax brackets, Australian shares returned between 11.9% and 10.1% per annum, listed property returned between 10.5% and 8.5% per annum, while residential investment property produced the best returns with 13.4% and 11.5% per annum. Fixed interest enjoyed more modest performance, returning between 8.5% and 5.4% per annum depending on the marginal tax rate applied. Cash returned 6.3% on the lowest marginal tax rate and 3.7% on the highest marginal tax rate including the Medicare levy. The ASX Investment Performance Report was funded by the ASX Research Committee, which undertakes research for the benefit of the securities industry.
Survey Highlights
For full Survey results please click here:
http://www.asx.com.au/about/pdf/TowersPerrin2003.pdf
- The Australian Stock Exchange has commissioned Towers Perrin to report on the performance of various investments on a consistent net basis (i.e. after all costs and taxation) over the ten-year and twenty-year periods ended 31 December 2003. Performance is calculated over these two periods for two reasons: to assist personal investors who invest for the medium and longer term, and to provide a reasonable comparison between investment sectors.
- Real returns have been particularly strong for residential investment property, listed property trust investments and Australian shares over the ten year period from 1 January 1994 to 31 December 2003.
- Over the 10 year period ending 31 December 2003, at the lower marginal tax rate, the after-tax returns of residential investment property (11.4% p.a.), listed property (8.9% p.a.), Australian shares (8.1% p.a.), fixed interest (5.1% p.a.) and cash (3.8% p.a.) have all exceeded the average rate of inflation (2.6% p.a.). At the top marginal tax rate, the after-tax returns from residential investment property, listed property and Australian shares were well above inflation. Returns from fixed interest assets were only slightly higher than inflation, but cash returns (after tax) fell slightly short of average inflation.
- Returns from overseas shares were relatively low at 6.0% due to a prolonged ‘bear market’ in the early part of this decade. After-tax returns have not been calculated due to complex global tax regimes.
- Dividends on Australian shares averaged 4.1% over 2003 and had an average franking credit of 75%
- Overall, at the top marginal tax rate, the effective tax rate for Australian shares is around 25%, residential investment property is around 27%, listed property is around 29%, fixed interest and cash is around 49%. The relatively low effective tax rate for Australian shares can be attributed mainly to the benefits of dividend imputation.
- In May 2004, the NSW State Government passed a series of amendments relating to
the taxation of property. These amendments do not affect this report, however, as the
changes take effect this year they are expected to affect future reports. The changes
expected to affect future reports are as follows:
- All investment property will be liable for land tax effective as of 31 December 2004. Previously, where the land component of the property was valued at less than $317,000, no land tax was payable. As of 31 December 2004, land values of less than $400,000 will pay a land tax rate of 0.4%. Land tax is levied as at midnight on 31 December each year, so this change will affect the 2005 report and not the 2004 report.
- A vendor transfer duty of 2.25% will be imposed when an investment property is sold. Exact commencement date is yet to be confirmed by the Office of State Revenue but taxes will begin to be imposed sometime between 1 June and 1 July 2004 regardless of when the property was purchased.
- The other changes relating to First Home Buyers, Premium Property Tax and amendments to stamp duty for properties purchased for more than $3 million will not affect next year’s report.
