To
compare the performance of investment products, click here
Property investments have taken a pounding over the past year. Confidence in
bricks and mortar has slumped and the property market come to a juddering
halt. As a result, funds that invest in property have lost nearly a quarter
of their value over the past 12 months.
However, far from being downhearted some professionals are rubbing their hands
with glee.
Michael Holt, who has been buying residential property for private investors
for more than a decade through his firm Charterhouse Standard Holdings,
says: “Even if the market continues to struggle in the near term, invest for
five or 10 years and you will almost certainly make a healthy profit.”
Many experts still urge caution. Rob Harley at Bestinvest, an independent
financial adviser, says: “We think property prices will be sluggish for some
time.”
However, past experience shows that intrepid investors often make a killing by
going against the herd.
If you are feeling brave, investing directly in bricks and mortar may be a
step too far. But there are alternatives.
Kate Faulkner, author of The Property Investor’s Handbook, says: “Property
investments are a cheap way to get exposure to a diverse portfolio and a lot
less hassle than doing it yourself.” But which are the best investments and
what are the dangers?
Property unit trusts
The most popular way of investing in property. Several dozen investment funds
pool their investors’ money and put it into offices, shops and other
commercial property.
Commercial property funds have fallen by about 21% in the past year.
Most advisers do not recommend investing at the moment — they expect other
investments to perform better as the market recovers.
Verdict: There are better ways to profit from a bounce in the market.
Investment trusts
Like unit trusts these funds pool investors’ money to buy a portfolio of
commercial properties. However, investment trusts are companies quoted on
the stock market, with shares that can be bought and sold.
An investment trust’s share price depends not just on the value of its assets
but also demand for its shares.
If shares can be bought for less than the value of the underlying assets it is
said to be trading at a discount. The recent stock market downturn has seen
some funds priced at discounts of 20% or more. In other words, you can buy
£1 of assets for just 80p.
Some advisers think trusts now look so cheap they are a definite buy.
Chris Hills, chief investment officer at Rensburg Sheppards Investment
Management, recommends TR Property and also F&C’s property trust, which
pays an attractive dividend yield, or income, of 6%.
Verdict: Looking very cheap and the advisers preferred way to get into
the commercial property market.
Bonds
Investors can access commercial property through bonds sold by insurers.
However, returns from bonds are treated as income so higher-rate taxpayers
pay 40% and those on the basic rate 20%.
With unit and investment trusts, returns are treated as capital gains and from
April investors will pay a flat rate of 18%. Unit and investment trusts can
be held in an Isa, making the gains completely tax-free.
Brian Dennehy at Dennehy Weller, a financial adviser, says: “People who want
to invest in property shouldn’t do it using a bond.”
Verdict: Not tax efficient.
Reits
Real-estate investment trusts (Reits) pool investors’ assets in a portfolio of
properties, mostly commercial. Investors are able to reclaim tax they would
normally pay on dividends if they invest in a Reit via a pension or an Isa.
However, the average Reit has fallen by 31% over the past year (see graph).
Investment professionals are divided on Reits: some believe that, after such
a pounding, now could be the time to buy at bargain prices. Others think
their poor performance will continue for some time.
Verdict: Good value, but more volatile than property funds.
Regional funds
These schemes are focused on specialist areas of the residential property
market and frequently promise double-digit returns. They often require a big
initial investment, have high fees and may tie up your money for several
years.
The Prime London Capital fund is one of the more accessible schemes. Managed
by estate agent Douglas & Gordon, it invests in top-end London property,
requires a minimum investment of £10,000, has an initial charge of 5% and an
annual management charge of 1.75%.
Verdict: For the experienced investor.
Index funds
It is possible to invest in accounts where your capital is guaranteed and
returns are linked to any rise in the Halifax House Price Index. Your
capital is guaranteed as long as you tie your money up for the term of the
account, usually five years. If the index falls, you get back your money,
but no interest. At present, no such schemes are open for new money.
Verdict: Safe, but don’t expect huge returns.
Overseas opportunities
Many fund managers believe there are opportunities in overseas property.
Fidelity, First State and New Star, among others, have launched funds giving
investors access to this market.
However, many of these companies still have exposure to UK property and have
suffered over the past year.
Numerous smaller funds exist, targeting specific regions. Mick Gilligan at
Killik, a stockbroker, recommends a stake in China Real Estate
Opportunities, a fund that invests in Chinese property development. While
western property markets are stumbling the outlook for China is good, with
office vacancies at a record low and strong rental growth.
Verdict: Moving overseas could result in better than average profits.
The Riet stuff
STEPHEN and Sarah Duncan-Brown, left, from Lee-on-the-Solent, in Hampshire,
have taken advantage of the slump in the market to buy back into property at
“bargain prices”. The couple, who are retired, have even invested a nest egg
for their granddaughter Zoe, 18 months.
The Duncan-Browns invested several thousand pounds in the real-estate
investment trust (Reit) Land Securities.
Its share price has dropped 23% over the past year, which they think makes it
look like outstanding value.
Stephen, 60, said: “I prefer Reits because they are easy to trade in and out
of and give you exposure to a wide range of properties.
I’m confident that its share price will bounce back — so confident in fact
that it is the first investment we have made on behalf of Zoe.”
