Stocks, rare coins, even wine, offer better returns than real estate?

Stocks, rare coins, even wine, offer better returns than real estate

By By Garry Marr CanWest News Service--Toronto

A new Re/Max study says real-estate prices have risen 264 per cent -- that's impressive, until you consider that's the total return for the past 25 years.

On a compounded annual basis, real estate has returned 5.3 per cent on a national basis over that period, about double the rate of inflation.

Meanwhile, the Canadian stock market has recorded double the returns of real estate during the same time period. More obscure investments, such as art and sports collectibles, claim even bigger gains.

But according to Re/Max, none can claim the safety and security of real estate.

"The average Canadian is not comfortable with the stock market and other investments and they go towards real estate because it is very predictable," said Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada.

Rising values

Nationally, Re/Max says, the average home in Canada cost $76,021 in 1981, but was up to $276,824 last year. Of the 18 markets surveyed, Barrie, Ont., homes had the greatest return over the past 25 years with prices rising 372 per cent.

"Most Canadians have done very well owning their home and they feel the stock market is just out of their control," said Polzler.

If they had surrendered to the stock market and invested in the S&P/TSX Composite Index, those people scared of the stock market would have secured a 560 per cent total return over the past 25 years for a 7.8 per cent annual return.

Investors with a taste for the exotic could have invested in something called the International Wine Investment Fund and secured a total return over 275 per cent in just the past decade. Look a little farther afield into collectibles and there are even better returns on your money.

Michael Haynes, chief executive of Nasdaq-listed Collectors Universe, says his rare coin index is up well over 300 per cent since 1981. He says investors are increasingly looking beyond real estate and the stock market for alternative investments.

"You have collectors who are just buying because they just want to own something for themselves, but we are also seeing people buying collectibles because they want tangible products to invest in," he said.

Risk downplayed

As to the issue of the risk associated with more obscure investments like coins, he downplayed that.

"What's the difference between investing in a bunch of dirt and a coin from 1850?" he said, referring to real estate.

CIBC economist Benjamin Tal said real estate might get a bit too much credit for being a stable asset class.

"We did go through a major correction in 1989," said Tal. "It has volatility, just not as much as the stock market and the bond market."

Peter Norman, vice-president of Clayton Research, said real estate will always have a bit of an edge because it is considered safe, but also because it has advantages like being exempt from capital-gains taxes.

He added one advantage consumers always have when they invest in real estate is they are usually borrowing against the equity in their home.

"You usually get a better return than what you are paying in interest," said Norman.

He adds that, for whatever reason, people who own their homes tend to be wealthier than people who don't.

"They tend to have much higher financial assets. There is just something about owning a home that forces people into a savings discipline that makes them more wealthy."

John Ing, president of Maison Placements Canada, is someone not quite convinced real estate is the perfect investment and prefers commodities, specifically gold.

"Real estate has done well, but it's a product of interest rates at 25-year lows," said Ing.

"Gold for thousands of years has been the ideal hedge against inflation. In the early '70s it was US$35 an ounce and traded as high as US$730 last year. I'll put my money on gold. Remember, when the oil boom turned into a bust, you could see through buildings in Calgary. During the FLQ crisis in Quebec, look what happened to Montreal (house) prices."