In many parts of the world, real estate is seen as a one-way ticket to riches.

Place a down payment, live there for a few decades, pay off the mortgage and you are wealthy.

There is a lot of money to be made in real estate. But in many markets, there is a lot more to be made in the stock market.

That isn't say that buying a house isn't recommended. People need a place to live, or it might make more sense to buy than rent in some places.

Tax incentives, low interest rates and rental income could also encourage buying a property.

But real estate isn't likely to outperform stocks over the long run.

Here is a side-by-side comparison of the Hong Kong, Singapore and U.S. markets. The data date back to 1975, real estate returns are nominal and stock market returns don't include dividends.

Stock Market vs. Real Estate (R.E.) Performance

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The stock markets in Hong Kong and the U.S. outperformed the real estate sector by a considerable margin. Only in Singapore did real estate win out over stocks over the long term.

The S&P 500 is hard to beat.

Since 1975, the stock market has outperformed the U.S. residential real estate sector in almost every decade. The S&P 500 has averaged an 8.1% annual return, which is 70% higher than the 4.8% average return in real estate.

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The only period when the housing market outperformed stocks was in the run-up to the housing bubble between 2000 and 2010.

Overall, stocks have performed much better. Those who held stocks instead of real estate over the past four decades, would have had returns that were four times greater.

So far this decade, the stock market is still beating the housing sector.

Hong Kong house prices have done better than in the U.S., at least since the 1980s. But though the real estate market is up 1,500% since 1980, the stock market is up 2,700%.

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The stock market in Hong Kong has done much better than real estate for the past three and a half decades, with real estate returns catching up only since 2000.

Singapore seems to be the exception.

Based on data by Datastream and the Straits Times Index, Singapore stocks have returned 5.2% on average every year since 1980, whereas the real estate market has returned 6.4% on average over the same period.

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Stocks outperformed real estate during the 1980s and early 2000s, but the 1990s housing bubble is responsible for the difference in average returns. So far this decade, neither the stock market nor the real estate market have performed particularly well.

To sum up, stocks outperform real estate in general, in most places. Investors who want a well-diversified portfolio should consider owning both.


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Kim Iskyan is the founder of Truewealth Publishing, an independent investment research company based in Singapore. Click here to sign up to receive the Truewealth Asian Investment Daily in your inbox every day, for free.

This article is commentary by an independent contributor.