Hot property

By DAILY MAIL REPORTER
Updated:

 

BRICKS and mortar seems to be the only investment that is making money, but how can you get into it if you don't want to buy a house?

The easiest way is through a pooled fund, which invests in the property sector. They concentrate on commercial property, or shares of building firms, rather than residential homes.

Figures from analysts Standard & Poor's show the total return from the average property fund over the past three years has been about 20%. Most funds investing in pure shares have lost as much as that or more during the same period.

Independent financial advisers (IFAs) say many investors are going into property as a way of diversifying their money away from shares. You could either go into a unit trust, which aims for capital growth as well as paying a small annual dividend - as much as 5% - or via an insurance bond, which prioritises paying income.

Not all funds invest in the same areas. For example, Aberdeen Property Shares mainly holds building firms' shares, so you wouldn't really be diversifying away from the stock market.

Alternatively, Edinburgh Property Portfolio and Norwich Property invest mostly in commercial buildings - offices and shops which firms rent out - which is very different from shares.

Most property funds available through insurance bonds are focused on commercial property, too. But can this sparkling past performance be repeated? Most experts agree the residential property market has overheated, while growth in demand for commercial space, particularly in South-East Britain, has practically ground to a halt because of the general economic slowdown.

Andrew Strang, managing director of Threadneedle Property Investments, is quite cautious on the outlook. He says: 'If consumers get worried about job losses or debts and stop spending, the market for retail outlets will also slow. Falling rents and vacant buildings mean capital values will fall, too.'

Nevertheless, John Wilson, head of property at Britannic Asset Management, sees huge demand from professional investors to buy properties or otherwise take advantage of the higher income it provides relative to cash.

This can push up prices and rents, so he estimates a total return of 10% from property for next year, and 8% to 10% for the following two years.

However, Mr Strang warns: 'People think commercial property is a risk-free investment, but that is not right. The sector is affected by the economic cycle.'

Investors should remember that insurance bonds are more expensive than unit trusts because they carry higher commission for advisers. They are also less flexible because they may carry exit penalties for early encashment and are taxed differently.

Returns are paid net of basic rate tax, which cannot be reclaimed by non-taxpayers. At IFA Chartwell, which rebates commission to investors not taking advice, Patrick Connolly recommends the Norwich Property unit trust and the property bonds from Norwich Union, Prudential and Standard Life.

Warren Perry, of IFA Whitechurch Securities, advocates steering clear of property shares funds and investing cautiously in just commercial property until the direction of the economy is more certain.

He says: 'If the economy slows further, retailers will retrench and manufacturers will struggle, so rental incomes will fall off.'

He prefers the Norwich unit trust and TR Property, an investment trust run by Henderson.

• MICHAEL MARKLAND, 64, pictured with wife Joy, 62, invested £5,000 in the Edinburgh Property Portfolio in 1999.

This was a fortunate move for the Marklands, from South Croydon in Surrey, as the investment has made a return of more than 30% during a time when most other assets have produced losses. Michael, a retired television executive, made the investment when his independent financial adviser suggested his portfolio should be better balanced.

He says:'It wasn't just luck, it was good advice - I did need to diversify out of shares. I wish I had put more of my money in property.'

Most watched Money videos