Investors are increasingly turning to the stock market for growth as the real estate “enthusiasm bubble” lets out some air, according to a poll released today by Investors Group.

Canadians are less positive than they have been in the past about the ongoing growth potential of their real estate investments. Approximately half of non-retired Canadians surveyed believe their real estate assets will grow more in value than their other investments over the next 10 years. This is a decrease from the 65% of Canadians who believed the same last year. Canadians’ expectations are moving closer to what history has shown to be true. Historically, residential real estate values have not increased as fast as the Toronto Stock Market Index. In the most recent 10 year period for which statistics are available (1995 to 2005), the average residential real estate sale price increased an average of just over 5% per year according to the Canadian Real Estate Association, while TSX returns have averaged 11% per year.

In spite of the apparent cooling of enthusiasm for real estate growth, 51% of Canadians say they are relying on their home as one of their sources of retirement income. Among baby boomers, 55% say their home will provide some of their retirement income.

“Bricks and mortar are no substitute for stocks and bonds. While your home is certainly an investment, it is not a replacement for careful, long-term retirement planning,” said Debbie Ammeter, vp of advanced financial planning support at Investors Group. “It is encouraging that Canadians are placing less emphasis on their real estate assets as a primary source of growth over the long-term. We know that RRSPs are an important component of retirement planning, and the results show Canadians are committed to investing in their RRSPs.”

The poll, conducted by Decima Research, found that Canadians intend to contribute more to their RRSPs. Two-thirds of Canadians who have RRSPs expect to contribute as much or more to their RRSP this year as they did in the 2005 tax year. In fact, a greater proportion of respondents are expecting to increase their contributions this year (31% versus 26% in 2005).

Twenty-nine per cent of respondents say they do not currently have money invested in an RRSP or a RRIF, but of these respondents, 15% plan to start contributing to an RRSP before March of next year.

Market sentiment remains very positive, with only 8% of respondents saying they plan to leave their RRSP contribution in cash. Forty-three per cent plan to invest in the stock market via mutual funds, and another 6% plan to invest directly in the market via stocks.

Canadians in the “baby-boom” generation are also strongly focused on equity investing with only 6% of respondents in the 45-64 age group saying they will leave their RRSP contribution in cash.

“Canadians’ long-term return market expectations are reasonable and realistic,” says Ammeter “Our research shows that 43% of respondents expect a long-term investment return between five and ten%, which is in line with how we’ve seen the market perform historically.”
The elimination of the foreign content rule may have had an impact on foreign investment intentions with 21% of Canadians saying they are more likely to invest outside of Canada, while 36% of respondents say their foreign investments will stay about the same.

The Decima data were gathered between October 20 and October 30, through Decima eVox, the company’s large national online panel. Results are based on a sample of 2,170 Canadians, and the corresponding margin of error is 2.2%, 19 times out of 20.