Last Updated on 20/03/2025 by Carl-Peter Lehmann
Buying Property vs Investing? For many South Africans looking to build long-term wealth, the classic debate remains: Should I invest in property or buy shares in the stock market? On one hand, buy-to-let property offers the appeal of a tangible asset and a steady income stream. On the other, the stock market offers compounding growth, liquidity, and diversification – all without the headaches of managing tenants.
This article explores the pros and cons of each approach and presents a simplified 20-year case study to help you think through the trade-offs. But before we dive in:
🔍 A quick note: The numbers used in this article are estimates based on general market trends in South Africa, and are meant to be illustrative rather than exact. Every property is unique, and location is the single biggest determinant of long-term returns—whether that’s capital growth or rental income potential.
We’ve used a typical 2-bedroom apartment in the Cape as a case study, assuming long-term rental rather than Airbnb. It’s also worth noting that platforms like Airbnb have transformed certain parts of the market over the last decade, distorting short-term yields – especially in places like the Atlantic Seaboard. For this comparison, we’re focusing on traditional, long-term residential rentals.
The goal here isn’t to crown a winner – but rather to offer a practical framework for thinking about the trade-offs involved in both strategies. With that said, let’s unpack the strengths and weaknesses of each.
PROPERTY INVESTMENT – PROS AND CONS
Investing in residential property – especially in sought-after urban centres – has long been a go-to strategy for South Africans wanting to build passive income and long-term capital growth. When coupled with leverage (bond financing), property investing can deliver powerful compounding effects over time.
✅ Pros of Property Investing:
1. Leverage amplifies returns
With 100% bond financing, small movements in value can translate into large returns on your equity.
2. Rental income = passive income stream
Tenants effectively help pay off your bond. If managed well, this creates a sustainable income source that grows over time.
3. Tangible and familiar asset
You own a physical property, which many find more reassuring than paper investments.
4. Tax efficiency
Property investors can deduct bond interest, maintenance, insurance, and rates from rental income when filing taxes.
5. Inflation hedge
Property prices and rental income typically grow with inflation over time, helping preserve purchasing power.
❌ Cons of Property Investing
1. Investing Illiquidity
Selling property takes time, with transfer processes, commissions, and sometimes long sales cycles.
2. High transaction and holding costs
Transfer duties, bond registration, ongoing maintenance, rates, levies, and agent commissions add up over time.
3. Vacancy and tenant risk
Vacancies, defaults, and property damage are realities. Managing tenants can be time-consuming and stressful.
4. Concentration risk
You’re exposed to a single physical asset in a single suburb and market.
5. Regulatory risk
Rental laws, tax changes, or restrictions (like Airbnb regulations) can shift the investment landscape quickly.
EQUITY INVESTING – PROS AND CONS
Investing in shares – typically via equity unit trusts or ETFs – is a much more hands-off way to grow wealth. It offers diversification, high liquidity, and global reach, which makes it a core building block in most long-term portfolios.
✅ Pros of Investing in Shares:
1. High long-term growth potential
Local equity markets, historically, have delivered 10–12% annualised returns (including dividends) over longer time periods.
2. Liquidity and flexibility
Funds can be accessed within days, making equities more adaptable to life’s changes.
3. Diversification
Exposure to dozens or hundreds of companies across different sectors and geographies reduces risk.
4. Low maintenance
No tenants, no rates, no fixing broken geysers. You invest and let markets do their thing.
5. Scalability
Easy to start small and increase your investment as income grows. Also ideal for monthly debit orders.
Further Reading: Some of the Best Performing Unit Trusts in South Africa over the last decade
❌ Cons of Equity Investing:
1. Short-term volatility
Markets can drop sharply. Without discipline, panic selling can destroy value.
2. Behavioural risk
Investors often chase returns or switch funds at the wrong time, harming performance.
3. No guaranteed income
Most equity portfolios reinvest dividends. Unless you specifically select income funds, you won’t get regular cash flow.
4. Perceived lack of control
Unlike property, you’re not choosing individual assets—you’re trusting fund managers or index providers.
5. Tax on growth and dividends
Depending on your investment vehicle, you may pay capital gains tax and dividend withholding tax.
CASE STUDY: PROPERTY VS EQUITIES OVER 20 YEARS
Let’s look at how a property investor in the Cape might have fared over 20 years, compared to someone who invested a similar amount in a local equity portfolio.
🏠 Property Investment in the Cape (2005–2025)
Today:
- Market value of a 2-bed apartment in a good suburb today: R2.5 million
- Current gross rental income: R15,000/month
Back-calculating to 2005:
- Assumed capital growth: 8% p.a.
- Property value in 2005: ≈ R577,000
- Rental income in 2005: Assuming 7% annual rental escalation
→ ≈ R3,890/month
Financing Assumptions:
- 100% bond @ 10% interest over 20 years
Monthly bond repayment: ≈ R5,600/month - Total bond repayments over 20 years: ≈ R1.34 million
Income and Expenses:
- Gross rental collected (20 years, with 7% escalation): ≈ R2.7 million
- Expenses (levies, rates, maintenance): 25% of gross rent
→ ≈ R675,000 - Vacancy allowance: 1 month/year (≈8% of total)
→ ≈ R215,000 - Net rental income retained: ≈ R1.81 million
Summary:
- Property value today: R2.5 million
- Equity (fully paid-up bond): R2.5 million
- Net rental income received: ≈ R1.81 million
- Total benefit over 20 years: ≈ R4.31 million
📈 Equity Investment: FTSE/JSE ALSI Tracker
Let’s say instead of buying property, the investor directed R5,600/month (same as the bond repayment) into an ALSI index-tracking unit trust for 20 years.
Assumptions:
- Contributions: R5,600/month for 20 years
- Average annual return (with dividends reinvested): 10.5%
- No panic selling or missed contributions
Outcome:
- Investment value after 20 years: ≈ R4.96 million
📊 Final Comparison
🧠 Conclusion: What Can We Learn Comparing Property to Equity Investing?
Equities win on long-term growth: Even when comparing to a relatively well-performing property (8% p.a.), equities edge out property over 20 years—without the hassle of tenant issues, maintenance, or vacancies.
Property delivers income: Rental income can be a valuable cash flow source, especially post-bond. For investors needing income (e.g. in retirement), this has its place.
Leverage works, but adds risk: Using the bank’s money amplified property returns, but it also brought interest rate and default risk.
Diversification matters: A property is a big bet on one market. Equity funds spread your risk across dozens or hundreds of companies.
Both strategies have merit: Owning a good property and investing consistently in the market can complement each other—balancing income and growth.
Further Reading: More on Henceforwards Unique Flat-Fee Approach
Carl-Peter Lehmann
Carl-Peter is a Certified Financial Planner® (CFP®) with over 20 years of experience in the wealth management industry, helping South African investors make informed, long-term financial decisions. At Henceforward, we operate on a unique flat-fee model, meaning we don’t earn commissions or percentages on assets under management. This ensures we have no vested interest in whether our clients choose to invest in property, shares, or other asset classes—our focus is purely on helping them make the best financial decisions across their entire balance sheet, not just the parts we get paid for.
