Never mind gyrating world stock markets. Forget collapsing economies in South-East Asia and Russia. And ignore Japan's failing banks.

UK property, it seems, is continuing to attract capital in near-record volumes, according to Money into Property 1998, the annual survey conducted by property consultants DTZ Debenham Thorpe.

The report, released this week, shows that apart from property company equities, there remains strong investor demand for property through direct ownership and indirect ownership via property Unit Trusts.

Bank lending to property shows no sign of abating, even as lending criteria soften. Even if recent anecdotal evidence of growing lender caution is borne out, it will be some time before it is reflected in property values.

As a whole, the report paints a picture of buoyant investor demand for property at a time when economic pundits are voicing fears of asset deflation and worldwide recession.

Why this should be so is not immediately clear. It is possible that collapsing stock markets make property investment look like a much better bet. Alternatively, the capital flows may simply reflect the supertanker-like qualities of property investment.

That is, the entire process may be so long and awkward that turning it around will take some time. By the time fresh capital for property dries up, the next recession could be well under way.

But the latest report, which examines capital flows from institutional investors and lenders, shows that these critical providers of capital see no cloud of recession on the horizon. "Despite a rise in investment activity and an increase in loans to the UK commercial property market, there are no significant signs of destabilisation occurring through excessive liquidity," DTZ concludes.

"Even with some slowing in economic growth there is no reason why the market should not continue to perform during the next 12 months if investors and lenders do not over-estimate the fundamentals of occupier demand."

The report found that overall the recent level of institutional investment activity is, in real terms, the second highest ever recorded. Total turnover through 1997 - defined as gross purchases and sales - was nearly £15.5 billion sterling, suggesting a high degree of liquidity by historical standards. Gross overseas direct investment in UK property in 1997 was a record £4.15bn, although the pace has slowed in the first half of 1998 to £1.4bn.

However, foreign demand remains a significant factor in the UK property market, and is helping to increase demand, DTZ concludes. For the year, DTZ is forecasting total direct foreign investment of about £3bn.

German investors, by far the largest buyers of UK property in recent years, have reduced their activities in the first half of 1998. However, US investors have stepped up their activities and US funds accounted for about a third of all non-domestic investment in UK property in the first half of 1998.

DTZ's fund manager's survey indicates that net institutional investment into property may total £2.3bn in 1998.

The typical property fund manager expects property to outperform equities and bonds this year, with estimated returns of about 15 per cent for direct property investment.

Meanwhile, the DTZ report found that lending to the property sector through the first quarter of 1998 is even greater than the £36.4bn identified by the Bank of England - a figure that caused it to express concern about excessive borrowing.

DTZ notes that loans from entities not defined by the Bank of England as a bank, such as those extended by the UK branch offices of German mortgage banks or those from UK building societies, are not in these data. Also, the data do not include loans to the property sector extended by insurance companies.

DTZ estimates that a further £7bn-£8bn is now outstanding. That is in addition to about £1.3bn in outstanding loans to the property sector from UK building societies and perhaps more than £4.5bn outstanding from foreign non-banking entities. DTZ estimates that there may be as much as £51bn outstanding in loans to the property sector.

It points out that relying solely on raw data can give a misleading impression of the amount of loan capital available for property. The numbers fail to identify what proportion of outstanding borrowings are new lending and how much is debt restructuring, or repayment, possibly following a securitisation of debt with institutional investors.

The data also omits loans extended to the property company subsidiaries of non-property companies. Actual lending may even be higher than that reported.

Nonetheless, there are signs that the flow of loan capital to property may slow. Just under half of the lenders surveyed intend to expand their real estate portfolios while nearly 15 per cent said they intend to shrink their property loan books. In the 1997 survey, none had plans to reduce borrowings.

Still, an appetite for riskier, higher yielding loans remains among some bankers. DTZ found that those prepared to lend for speculative development have, on average, increased the proportion of their portfolio lent on such schemes. The report contrasts the upbeat picture from lenders and institutional investors in direct property with a much gloomier message from the quoted property sector, which has been losing capital.

Through the first half of 1998 this sector has underperformed the FT All-Share Index by 13 per cent, and that does not include the substantial price fall in July.

DTZ says prospects for an economic slowdown and its sobering effect on rents may be causing investors to lose their taste for property shares. The unasked question is whether equity investors have spotted something that investors in direct property have failed to see.