CASH DEPOSITS are a better option for investors than property and will generate up to a 50 per cent higher return over a five-year period, according to the first of a new series of reports that aim to assess which asset class will generate highest returns for investors.

According to the Residential Property Investor Report, investment property is overvalued by 43 per cent in Dublin and by just under 50 per cent in Cork and Galway, based solely on rental incomes versus deposit returns over a five-year period.

The report by Irish Mortgage Brokers in conjunction with PropertyWeek.ie shows that an investor who buys a two-bedroom apartment in Dublin based on an average asking price of €350,000 in March 2009 faces start-up costs of €88,679.

This includes a 20 per cent deposit, a stamp duty bill of €15,732 and fit-out costs of €3,000. If the property attracted a rent of €1,250 a month and the investor secured a five-year fixed-rate interest-only mortgage at the current average rate of 4.85 per cent, they would make a total loss of €10,698 after five years.

However, based on the prevailing market-leading deposit rate, if they invested the initial start-up costs of €88,769 in a deposit account, they would earn total interest of €14,452 after deposit interest retention tax (Dirt), according to the report.

The mortgage brokers calculate that for the Dublin investment property to match the return from a cash deposit, the price of the apartment would have to be no more than €201,000 at current rents.

The figures do not include the benefit of capital appreciation or depreciation in the property and focus on a pure “return on investment” basis.