Stock market versus bricks and mortar: 1-0
Those who have been househunting in recent years have undoubtedly been hit where it hurts – in their pockets. Whether it's a small studio or a grand villa, real estate prices are constantly on the rise. The historically low interest rates on mortgages are one explanation: with buyers able to borrow more, those selling simply put their asking prices up.
Yet it's not all down to the low interest rates, as demand for real estate has gone up due to the rising number of residents and the increasing number of smaller families. The result is that more, and smaller families are looking for a home. In addition, an increasing number of Belgians are buying real estate to diversify their assets and/or generate extra income.
If we look at the prices of real estate over roughly the last fifty years, the figures speak for themselves. Despite a few dips, the graphs show significant upward trends.
Sale of real estate in Belgium according to the type of cadastral plan – average price in real terms (1973-2017)
Belgian shares versus Belgian real estate: 1-0
Belgian real estate? At first glance, you'd think that's a win-win situation. But what if we compared Belgian real estate with Belgian shares? De Tijd went through the archives in 2018 to do just that. The daily business newspaper calculated the average return on all Belgian shares listed on the Brussels stock market from the start of 1968 to the end of 2017. Dividends paid out were included, with the assumption that the dividends were immediately invested in the underlying share. Inflation was also considered in the calculation to arrive at the real return. The result? If you invested €1,000 on the Brussels stock market at the start of 1968, you'd bagged a return of €22,800 (after inflation). That equates to a return of 6.5% on an annual basis – and takes the stock market crashes of 1974 and 2008 into account, too.
Those who decided to invest in real estate fared less well: the €1,000 you invested in bricks and mortar in 1968 was worth €2,500 at the end of 2017 (after inflation), a return of 1.8% on an annual basis. Of course, this comparison should be taken with a pinch of salt as on the one hand, it doesn't take into account any returns resulting from rental income, while on the other it doesn't consider maintenance investments and any periods during which the real estate may have been empty. Yet the difference is clear.
€1,000 invested in Belgian shares in 1968= €22,800 at the end of 2017 (after inflation)
€1,000 invested in Belgian real estate in 1968= €2,500 at the end of 2017 (after inflation)
Source: De Tijd
International shares versus Belgian real estate: 1-0
At Credit Suisse, they delved even further into the archives. Data from 23 representative countries shows that between 1900 and 2017, shares generated an average annual return of 5.2% (after inflation). And if we look at the last 50 years, the return stands at 5.3% per year. In the same period, European and American shares generated an annual return of 6.3% and 5.7% respectively.
Annual return 1968-2017 (after inflation)
- Belgian real estate: 1.8%
- Belgian shares: 6.5%
- European shares: 6.3%
- American shares: 5.7%
- Global shares: 5.3%
Source: De Tijd and Credit Suisse
The conclusion that can be drawn here is that if you compare shares with Belgian real estate, shares historically generate a significantly higher return. That said, you should also take other factors into account when making a comparison, such as the time, energy and money you put into your investments or bricks and mortar.
Sources: Statbel, Credit Suisse Global Investment Returns Yearbook 2018, De Tijd