Comparisons Of UK Property And Stock Market Invesments

Dissertation part A

ABSTRACT: generally, there are various methods of investment in financial market as well as investment in other segments. Most of the times those investments will be eternalized by finance industry employees. In some methods the financial market and asset are not clear and shareholders are confused, but in other types of investment people should transfer large amount of money to the experts because they know how to make more considerable returns of the capital.

Argument that investment in UK properties has more returns compare to investment in UK stock market, has been existed constantly, but historically, during the past years returns of direct investing in properties have been higher than stock market. There are two investment ways in properties. First one is investing directly in properties and second one is investing in property company shares. The reason of different decision about investment in properties market or stock market will be mentioned below.

Increasing in value of the stock price and dividend expectation are the most important reasons that investment in UK stock market is considered better investment than UK properties market. Whereas, investing in properties in UK can be divided into three period of time. In short term, an investment property can make satisfactory benefit to pay off mortgage or maintenance. In the medium term, the property could cover any retirement income , and in the long term it is able to provide a nice acceptable home in reasonable standard of living.according to these all advantages, it is not amazing that so many people are choosing to purchase a UK investment.But financial reasons of investing in properties market are: a dependable and growing flow of income, mortgage pay off (amortization), value creation (property improvement), instant gain(bargain purchase price), government benefits (tax credits, tax deductions, rent vouchers, etc.), strategic management, value increases (appreciation) and inflation (Andrew James McLean, Gary W. Eldred, 2005).

However, according to IPD indices annual total returns to end of 2009, grow of returns of investment in UK properties has not been considerable, but, land price in UK has been increased by almost 92% in the last 20 years. So investment in UK land has proved to be highly rewarding as returns on investment in land have outperformed the returns from stock marke


Basically, Target of this research is to determine the point of the UK property investments and the UK stock investments as well, illustrate the factors that are used for financial management of both kind of investment options and also analyse the factor in order to identify why the property investment has been known as better returns compare to the stock markets. Therefore, objectives of this research can be classified as below;

Identify the reasons that return on UK property investments is higher than those on UK stock investment?

When UK property investments do make more returns than UK stock investments?

Can stocks investments be better than property investments?

If yes, why, how and when?

What kind of properties investments (commercial or residential) is better investment in stock?



As long as someone decides to invest, different options are available and individuals chose the most appropriate one based on their personal situations. Various factors will have impact on decision making for investment but the considered investment in this research will be investment in UK property or shares investment.

According to (M. ball et al, 1998), basically, financial investment practice or theory is a kind of trade-off between risk and rewards and higher returns need higher risk, also investor will supposed to obtain returns after investing money. Mean variance criterion can be another definition of trade-off. Mean is related to the average returns and variance will give a range of possible returns and is measure of risk

Purpose of investing is the most important objective of balancing investor’s needs and performance of investment. Obviously, requirement of different investors are varied but, purpose can be determined but some essential need or may have latitude enjoy by those whose wants are satisfied. Some investors might be able of precise destination, but mostly there will be high uncertainty. While wide range of investments is available, solving the issues of purpose is easier. whereas, difficulties will appear when full achievement is hardly possible.

Investment in UK properties

Beside of house falling price, investment in property market always has been considered as a secure saving money, because this kind of investment is lower risky than share or bonds. According to low interest rate, many people will be interested to buy property with buy-to-let mortgage and take advantage like making money from rental income and increasing property value. Therefore, this kind of investment can be better in terms of return compare to other kinds of investment. (Mintel, 2006).

Securitization has enable real estate investment to be executed through an accepted industry sector of the global stock markets. This has debt (Commercial Mortgage-backed securities, or CMBS) and equity (Real Estate Investment Trust or REIT) formats, both of which grew rapidly in 1990-2007(Andrew Baum-2009)

After providing rational facilities of mortgage pay-off by REIT and also offering desirable features that many of people had been looking for ideal property vehicle and moreover providing performance feature in liquid form, popularity of REIT has been grown and in the 1990’s.consequently, REIT structure was sent to many parts of world and was introduced in UK since 2007.However basically, REIT is a company and in the long term returns of the investment have been just related to the direct property investment and volatility of investment in property company shares has been higher than direct property investing. But, instead has been countable correlated to equity market (Andrew Baum 2009)

According to supply of property shares to grow requires growth in quantity of official property companies. In 2000, market pressure in UK was executing in different way as large discount to net asset value in share price made it more attractive for establishing property companies private and exploit property values in other ownership format whose performance is not related to the stock market. Unexpectedly, critical recovery has been accorded in 2002-2006 same as 2007-2009. (Andrew Baum 2009)