Investing in Property Vs Shares – What’s Better for Australian Expats?

As an Australian Expat, managing your finances and investments effectively is crucial for securing a prosperous future. One of the key decisions many Australian Expats face is whether to invest in shares or real estate. Each option comes with its own set of advantages and challenges, and the decision largely depends on your own goals, risk tolerance, and long-term financial plans.

In this blog post, we’ll explore the pros and cons of investing in shares and real estate as an Australian Expat, helping you to determine which option may suit your needs best.

Investing in Shares as an Australian Expat

In simple terms, buying shares (also known as stocks or equities) affords you partial ownership of a company. As a partial owner and investor, you can benefit from the company's growth, profitability, and dividends. This is reflected in the share price of the company increasing in value, relative to the price you paid for it.

While not covered in this blog, investment products like Exchange-Traded Funds (ETFs) and Managed Funds would also be considered "Share" investments.

Here’s a breakdown of the pros and cons of investing in shares for Australian Expats:

Pros of Investing in Shares

• Tax-Free Capital Growth: As an Australian Expat, the increase in value of your Shares is not subject to Capital Gains Tax (CGT) in Australia where you are a non-resident taxpayer. This offers an opportunity for Australian Expats to grow their wealth tax effectively while they live abroad.

  
  

• Dividend Income: Shares can pay dividends, providing an additional source of passive income. For Australian Expats, this income is generally subject to low or zero income tax in Australia, depending on the tax treaty between Australia and your host country. These dividends can be reinvested to further compound your investment return or used as additional cash flow.

  
  

• Potential for High Returns: While shares can be volatile, they historically offer higher returns over the long term compared to real estate, especially for younger investors with a longer investment horizon.

  
  

• Liquidity: Shares are highly liquid, meaning you can buy and sell them quickly on the stock market. If you need access to cash, you can sell shares almost instantly, making them a flexible investment. This is beneficial for Australian Expats, as their employment or living situation can change suddenly.

  
  

• Diversification: Investing in shares allows for easy diversification. You can spread your investments across different sectors, industries, and even international markets. This reduces the risk of your entire portfolio being affected by a downturn in a single market.

Cons of Investing in Shares

• Volatility and Risk: The stock market can be unpredictable. Share prices fluctuate based on market conditions, company performance, and external factors like political events. This volatility can lead to losses, particularly in the short term.

  
  

• Lack of Control: As a shareholder, you have little influence over a company's operations. The performance of your investment is largely dependent on external factors, such as management decisions or market sentiment.

  
  

• Tax Implications: Depending on the country you reside in, you may be subject to taxation on your share dividends or capital gains. It’s essential to understand the tax treaties between Australia and your host country to avoid tax-related issues.

  
  

Investing in Real Estate as an Australian Expat

Real estate investment involves purchasing property in Australia to generate rental income or capital gains from future price increases. Many Australian Expats are drawn to property due to its stability and tangible nature, however, there are lesser-known considerations when analysing the tax implications.

Pros of Investing in Real Estate

• Tangible Asset: Real estate is a physical asset, which many people find comforting compared to intangible investments like shares. The value of property tends to rise over the long term, particularly in sought-after locations.

  
  

• Leverage: Real estate investments can be leveraged by borrowing money to finance the property. This allows you to control a more valuable asset than you would with an all-cash investment, amplifying potential returns (though also increasing risks).

  
  

• Steady Cash Flow: Rental properties can provide a consistent source of income. For Australian Expats, rental income from Australian properties may be an appealing way to generate passive income while living abroad.

  
  

• Capital Growth: Over time, the value of property tends to appreciate, particularly in urban or high-demand areas. This can lead to substantial capital gains when selling the property in the future.

  
  

• Tax Benefits: In Australia, property investors can take advantage of tax deductions for mortgage interest, depreciation, and property management costs. Expats may be able to claim these benefits if their property is rented out.

Cons of Investing in Real Estate

• Tax Rates & Reporting Obligations: Capital gains and rental income from Property will continue to be subject to taxation in Australia. Moreover, the tax rates which apply to Australian Expats are higher compared to residents living in Australia. Shares on the other hand are generally not reportable in an Australian tax return where you are a non-resident, saving you on Tax administration costs.

  
  

• Limited Capitals Gains Tax (CGT) Concessions: Australian Expats are not entitled to the Main Residence Exemption or 50% CGT Discount Concession when the property is sold, negating some of the effectiveness of real estate as an investment asset.

  
  

• Distance Management: If you live overseas and own property in Australia, managing the property can be tricky. You’ll likely need a property manager to handle day-to-day tasks, and this will come at an additional cost. Plus, managing a property remotely can be time-consuming and challenging.

  
  

• High Entry Costs: Real estate requires a significant initial investment, including the cost of the property, stamp duty, legal fees, and other transaction-related expenses. As an Australian Expat, you may also encounter challenges when arranging financing from abroad.

  
  

• Illiquidity: Unlike shares, real estate is not easily liquidated. If you need to access cash, selling a property can take months or even years, and the market conditions may not be favourable when you need to sell.

  
  

• Ongoing Costs: Property ownership comes with ongoing expenses such as maintenance, insurance, property taxes, and property management fees. These costs can add up and eat into your profits. Australian Expats should also be mindful of any land taxes that may be applicable when renting out their former main residence.

  
  

• Market Fluctuations: While property generally appreciates over time, real estate markets can be cyclical. Prices may stagnate or even decline during an economic downturn, especially in areas that become oversupplied or lose their appeal.

So, which Is Better for Australian Expats?

Ultimately, the choice between shares and real estate depends on your personal circumstances, risk tolerance, and investment objectives. Here’s a quick summary:

Investing in Shares may be ideal for Australian Expats looking for tax advantages, flexibility, diversification, and potentially higher returns with less initial capital outlay. If you prefer a passive approach to investing and are comfortable with market fluctuations, shares might be the right choice.

Investing in Real Estate may appeal to those seeking long-term stability and a tangible asset. If you have the capital for a down payment, are interested in generating rental income, and are willing to manage a property (or pay for management services), real estate could offer the potential for steady returns and capital growth.

Both asset classes come with their own risks and rewards, so it’s important to weigh your options carefully. A balanced investment strategy that includes both shares and real estate could also provide a diversified approach that allows you to tap into the benefits of both markets.

To avoid the pitfalls and tax risks that exist when considering either asset class, it is encouraged to consult with a Financial Adviser who understands the nuances of being an Australian Expat and can help guide you toward the best investment strategy for your situation.

Runway Wealth Management is the trusted Financial Adviser to the Australian Expat community. Our tailored advice is backed by expertise, education and experience, which allows us to be at the forefront of Australian Expat Financial Planning.

If you would like to speak to one of our Expat Financial Advisers about this blog or if you have other queries, we would be more than happy to speak with you. Feel free to send us an enquiry through the ‘Contact Us’ tab provided in the below link:

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General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.