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Property 'love affair' on the wane

Investor confidence in the UK housing market has fallen dramatically according to the latest investor confidence index from the Association of Investment Trust Companies (AITC).

Their research suggests that the UK's love affair with property investment is on the wane, whilst this year's stock market rally seems to have made active investors jittery rather than jubilant.

Whilst 30% of the general population said they still thought the housing market would produce better returns than the stock market over the next year, this represents a sharp drop on the 40% who said this last February and 53% who said this in January 2003. In contrast just 9% of active investors agree the housing market will outperform.

But active investors are also less confident about the prospects for the stock market, with 58% tipping equities to outperform property over the next twelve months, a 22% fall compared to 71% in February. However, this is still higher than October 2004, when 53% of active investors said they expected equities to outperform property.

Some 44% of active investors plan to increase their equity holdings in the coming year, considerably down on the 58% who planned to do so back in February 2005 and down from 46% in October 2004. A sizeable 40% are holding steady, neither planning to increase or decrease their investments, an increase from 32% last February whilst 11% are planning to decrease their investments, a rise from 7% in February.

The general public also remain cautious, with only 5% planning to increase their holdings, up slightly on the 4% in February.

The top reasons why active investors were planning to decrease their stock market investments were "concern over the fragile economy" (20%) and "taking profits" (19%). When asked why they thought the stock market would outperform the housing market over the next twelve months, one in four active investors (24%) said they felt property is still too expensive, up from 20% in October 2004, and a worried 13% expressed concerns over a property market crash.

Safety in numbers?

Although 30% of the general public still feel bricks and mortar will produce the best returns over the next twelve months, the reasons behind this view have altered significantly. A combination of strong stock market gains and subdued growth in the housing market since then means that only 33% still feel property is the safest option. This is down from 46% in February 2005 and 56% in October 2004, reflecting a consistent slowdown in the proportion of the general public who felt that property was the safest way to invest.

Annabel Brodie-Smith, AITC communications director commented: "Although still nearly a third of the general public believe property will outperform the stock market over the next year, this figure has been consistently falling. We believe the repeated warnings about a property slow-down are beginning to have an impact but it's a concern that many people are still banking on property prices rising."

"Markets have rallied in recent weeks after Halloween's Merger Monday, but this index completed before then clearly demonstrates that active investors' confidence was knocked by the stock market's tough ride during October. We'll have to wait and see whether the recent stock market rises have boosted their confidence."

"The general public also remain reluctant to invest in equities. It's true that the stock market's ups and downs can be off-putting but it's important to remember that equities are for the long-term, at least five to ten years or more and over these periods they usually outperform bank and building society accounts. Investment trusts are a good way to gain access to the stock market and have performed strongly over the last ten years with the average investment trust up 118%."