Property vs Share Market Investing: Leverage, Regulation & Insights

In this episode of the Follio Property Podcast, hosts Lachlan Delahunty and Reece Beddall are joined by Bryce Leske and Alec Renehan from Equity Mates to discuss the evolution of financial and property education and the current investing landscape. The conversation explores the contrasting regulations and risk perceptions between property investing, including leverage and spruikers, and the share market. They also touch upon broader economic themes such as inflation hedges, the recent federal budget, the dynamics of the AI tech boom and alternative asset classes like bonds and private equity.

Key Takeaways & Market Insights 

• Long-Term Share Market Returns: Historical studies, including “Triumph of the Optimists” (1900 to 2000), show that Australian shares delivered 7.5% per year after inflation. Additionally, a 145 year study by the San Francisco Fed (1870 to 2015) recorded an annual return of 7.81% after inflation.   
• Nasdaq Performance: Over the 20 year period leading up to the discussion, the Nasdaq 100 generated an average annual return of 19.3%.   
• AI Tech Valuations: Unlike the pure hype of the late 90s internet bubble, some current AI-adjacent chipmakers like SK Hynix are trading at a low price-to-earnings ratio of 4 times because they are generating massive earnings, with average employee bonuses at Samsung reaching around $400,000.   
• Property Leverage Disparity: Home buyers frequently utilise leverage up to 90% or 95% of a property’s value. In contrast, share market leveraged exchange-traded funds (ETFs) typically offer more moderate structures around 1.5 times gearing to avoid the severe risks associated with higher-multiple volatility.   
• Global Bond Yields: Safe-haven US government treasury bonds provide a reliable return of around 5% for investors seeking alternative income streams.

Property Leverage vs. Share Market Leverage

Investors readily take on massive mortgages while viewing stock market leverage with hesitation. However, structured equity products are changing how market participants access debt.

“It’s such an interesting mindset that people are willing to take out a mortgage of up to 90% – 95% and work week on week, month on month to pay that off. Then look at taking out 100 grand and putting it into the stock market and the risk that they associate with that versus putting all chips in one basket is crazy to me.” – Bryce Leske

“So the way that leverage in the stock market is developing, I think, is in a really good way. So traditionally, you would have to go out and take out a margin loan. Um, so similar to a mortgage, but without principle and interest repayments.” – Bryce Leske

“What we’re seeing now is a new evolution of leverage in exchange-traded funds that are much more moderately geared, where they have between 40 and 60% gearing.” – Bryce Leske

The Lack of Regulation in Property

Unlike the heavily regulated financial sector, property remains unregulated. This leaves room for unqualified individuals to give high-stakes advice.

“ASIC can’t do anything until the property and Bitcoin get regulated. Right now it’s the Wild West.” – Alec Renehan

“I could say to you, ‘The best thing that you can do for your financial future is buy that house on the corner for a million bucks.’ Yeah. And borrow 95% of the money… And you can walk away and there’s no ramification for the advice that you’ve given there.” – Bryce Leske

Long-Term Inflation Hedges: Shares vs. Property

Historical studies show that shares serve as strong inflation hedges over long periods.

“Shares over the long term, great hedge against inflation, and we’ve got some long-term numbers in our back pocket to talk to. There was a study called Triumph of the Optimists. It looked at 101 years of share market returns from 1900 to 2000 inclusive and after inflation, Aussie shares delivered 7.5% a year after inflation.” – Alec Renehan

“Zoom out further, the San Francisco Fed have done a study, 145 years, 1870 to 2015, Aussie shares delivered 7.81% after inflation.” – Alec Renehan

“In that San Francisco Fed survey, 145 years of data, property did underperform shares. About 6.5% a year for property, 7.81% for shares, both after inflation, so both good after inflation returns.” – Alec Renehan

Future Predictions & Market Outlooks

• Increased Demand for Leverage Products: As properties become increasingly expensive and harder to attain, the market is seeing a rising demand for leveraged investment products.
• Shift Toward Stock Market Leverage: More investors priced out of property may look to leverage into the share market, prompting the evolution and adoption of moderately geared ETFs.
• AI Market Volatility and Sustainability: While the current artificial intelligence trade and data center boom are generating massive earnings, market participants acknowledge that this momentum will eventually lose its heat when market psychology shifts or lower-cost alternatives emerge.

Take Control of Your Property Strategy with Follio

Navigating housing market downturns, rising interest rates and evolving economic conditions across Australia requires moving beyond surface-level trends. Grounding your decisions in research, data and proven investment advice is essential.

At Follio, our advisory team helps clients review their portfolio risk, map out worst-case cash flow scenarios and utilise our in-house PropStac data to navigate challenging market cycles and protect their downside. 

Subscribe to the Follio Property Podcast and tune in each week to Australia’s leading property investment podcast for actionable insights and data-driven guidance.