With the gloomy outlook and weakening investor confidence in the volatile share market, a recent study has revealed that a majority of Australian investors now believe investment property and not shares is the better choice for their investment dollars. In this article, we look at how the volatility in the share market is unlikely to abate in the near future and why investors are valuing residential property above all other investment types.
Survey Shows Investors Rank Property Over Shares
The research organisation CoreData in its Investor Sentiment Research Report found that 73.5 per cent of the Australian investors surveyed expect residential property investment holdings to outperform share portfolios. This leaves only around a quarter (26.5 per cent) of investors who expect their share portfolios to perform better.
The investors surveyed believed that all investments other than residential property would perform worse in the next three months. Residential property was believed to present the greatest worth among the investments held, with savings having the lease value of all investment types.
Investors have been shaken by the recent US and European debt crisis.
- More than half (55 per cent) of the 820 surveyed were worried about not earning enough money.
- Almost half (45 per cent) were concerned about paying off their debts.
- The survey found that investor sentiment fell by 15.7 points to -21.7 points in the third quarter.
Deteriorating Confidence and A Volatile Share Market
The Australian share market lost value for the fifth consecutive month over into August 2011, led by falls in international markets. The ASX 200 Accumulation Index fell by 1.9 per cent in that period, while the decline in July 2011 was the largest monthly decline since May 2010. As the US debt crisis worsens, international stock markets as well as the local share market offer little certainty for security conscious investors.
The CoreData survey found negative sentiment toward future business and economic conditions was prevalent, with 80 per cent of respondents predicting an economic slowdown for the coming quarter. It found 68 per cent of the surveyed investors expected not just a slowdown but a deterioration. This is to be contrasted with 44 per cent of investors who believed so in the last quarter.
While investors held negative sentiment towards business and economic conditions regardless of their demographic profile, a large proportion of investors believed residential property had the most potential for growth and valued it above all other investment vehicles.
Property ‘As Safe as Houses’
BIS Shrapnel’s chief economist Frank Gelber stated in September 2011 that ‘fear rules’ in world equity and debt markets, also adding that ‘property is a low-risk, high-return proposition’.
With both Europe and the US embroiled in financial troubles, there appears to be no end to share market volatility in sight. Investors are reviewing their investment strategies and turning to more secure ‘brick and mortar’ based investment vehicles such as a property.
While shares are subject to daily and even hourly fluctuations and are sensitive to a wide a range of factors, demand for property in Australia remains high and well sheltered from volatile commodity prices and political and business sentiment.