Increasing appetite for property investment

27 October 2009

Now may be the time to get back into property, as experts believe we have reached the bottom of the cycle.

With new funds being launched, and some property vehicles are registering strong inflows, it appears as though the worst is over for commercial property investment.

In August, UK property registered its first rise in more than two years according to Investment Property Databank. The index also recorded a rise a month later in September.

Graham Gould, managing director of Coba Asset Management, says “We’ve now hit the bottom of the cycle or, even if we're not, we're not far from it. Prices have fallen hugely.”

Robert Walters, investment director of property at BDO Stoy Hayward Investment Management, adds: “If you compare autumn 2009 and summer 2007, the yields at which you can acquire property today are the same yields you bought a second-rate property in 2007”

The pair, along with property consultants Strutt and Parker, have now set up a fund to take advantage of the “very strong opportunity” they spy with commercial property.

The UK Strategic Income Property Fund is a close-ended fund with an expected life of seven years. It will invest in industrial property at first, and may add retail and office later.

Walters says: “Recent market data shows a significant improvement in investor sentiment and by focussing on stronger assets it is possible to acquire high quality property with long-dated income to meet the fund's objectives and, therefore, the investors' needs.”

The fund will target a total return of 10%, including an annual distribution of 5% to 6%. It plans to launch with a minimum £25 million and has an annual management charge of 1%. A proportion of the management fees will be donated to housing charity Shelter.

“Some retail commercial property funds are run by quite junior young people,” notes Walters. 'But we have a very experienced team, and partnered with Coba, BDO has launched five property funds before.”

There is a high minimum investment though - £100,000. However, investors can invest via a self-invested personal pension (SIPP), and the firms say they would take investments of £25,000 “in theory”.

Meanwhile, TR Property investment trust has enjoyed some good news over the past few weeks.

Private investors that use the Alliance Trust Savings platform are increasingly buying the trust. It is a new entry in the platform's top 20 investment trusts that investors have bought from 6 July to 5 October. The trust is ranked 17th, up from 30th place in the previous three months.

Iain Scouller, an investment trust analyst at stockbroker Oriel Securities, says: “Investors appear to be looking to some of the trusts that performed badly during the downturn, such as TR Property, to recover going forward.”

Peter Hewitt, director of global equities at F&C Investments, is also a fan of TR Property.

“It has a big dividend reserve and a very well-respected manager – Chris Turner,” he explains. “It has a decent yield of around 4% and will benefit from the closing of big discounts of property securities. I think it will continue to do quite well.”

Over the past year to 1 October, the trust has delivered a 15% return, compared to an sector average loss of 14%.

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