There are a number of ways that it is possible to invest indirectly in the residential property market but first, what are the advantages of indirect investment?
1. the size of the investment can be much smaller than direct property investments, rather than thousands it can be hundreds of pounds
2. the investments are much more liquid so it’s easier to put money in and easier to take funds out
3. there are little or no management involvement in the investments
4. the entry and exit costs from the investment are also a lot smaller
The strong performance in residential property has led to a number of innovative schemes looking at ways that investors can invest in residential property without having to do it directly.
One way to invest indirectly in residential property is through the stock market. There are a variety of companies whose performance depends to a greater or lesser degree on the residential property market. For instance, there are the numerous quoted house builders which as well as carrying out development, also hold large land banks. The asset value of these companies often varies in line with the underlying value of residential property as land costs generally rise and fall in sympathy with house prices. Another company to consider is Grainger Trust - www.graingertrust.co.uk . This company is the UK’s largest quoted residential property owner, with over 12,000 homes. As well as owning property they are also active in other related areas such as equity release, asset management and house building. Opening a share dealing account is a lot easier than you might imagine.
The Diverse Fund launched by Cordea Savills, the investment arm of the property company Savills Plc offers the opportunity to invest in student halls of residents, residential homes for doctors nurses & housing association properties on long leases. It is a Jersey quoted Oeic (Open ended investment company). It can borrow up to 70% of the value of it’s assets and has a current value of £10 million. Minimum investment is £10,000. The fund aims to capitalise on the growing popularity of student accommodation as an investment asset. The fund has a 5% yield and the projected capital growth in the fund is in excess of 10% per annum between 2006 and 2010.
Great things were promised by the Government for personal pension holders as a result of ‘A-Day’ at the start of the 2006 tax year. This catchy expression was meant to herald in a raft of new ways of investing for your retirement through a SIPP, including the ability to hold residential property in it. Not for the first time the Government failed to deliver. In a dramatic last minute U turn; it removed residential property from the list of qualifying investments. This dashed the hopes of many existing and potential residential investors. However, in the latest twist to the saga the regulations were ‘tweaked’ by the budget to allow the direct holding of residential property in a SIPP but only through a syndicate. The qualifying criteria are quite restrictive in that the syndicate must comprise of 10 or more people and that the properties cannot be used by syndicate members. In addition, the SIPP must be worth £1 million or more and have 3 or more properties. No single property should be worth more than 40% of any individual SIPP.
REITs have been available in the US and Japan for a number of years and are very popular with investors as they provide a transparent way to invest in property but without the difficulties of direct ownership. The attractions of REITs to the investor and property company is that they pay no corporation tax on their rental income. From the 1st Jan 07 UK property companies are free to convert to a REIT. In returns the companies under the regulations have to distribute 90% of their income to investors. This means that yields on the shares are likely to be high compared to other equity investments quoted on the stock market. The other attraction to REITs, which ultimately can invest in residential property as well as commercial property; is that they will be able to be contained within a PEP or ISA. This allows any income and ultimate capital gains if the shares are sold to be received tax free.
In general, it is likely that the number and variety of schemes available for indirect residential investment will increase as institutions and companies continue to explore ways of allowing investors to access this popular and strongly performing asset class. If the US experience is anything to go by, one of the developments could be the emergence of specialist REITs that invest purely in residential property giving small investors a genuine opportunity to invest indirectly in UK residential property without the drawbacks of direct ownership. Watch this space for developments and keep up to date with the latest news through Property Hawk’s blog.
As I have already commented on the fact that institutional investment funds have traditionally avoided residential investment but at the same time have long been large investors in commercial property. Commercial property is yet another way of diversifying your investments. It has shown some strong returns in recent years. Investment funds come in a variety of forms including investment trusts, unit trusts and oeic. They provide a mechanism for individual investors to have a share in the capital appreciation and income derived from investing in a range of commercial property.
If you find all the talk about investment returns and capital boring and confusing. Then, maybe it is time that you sought professional advice. To source a IFA(independant Financial Adviser) try www.unbiased.co.uk which is the website for IFA (Independent Financial Advisers).
IFAs are the only advisers that are able to advise and select from the whole range of investment products on the market. They are bound by the Financial Services Rules, which ensures that any product that they recommend should be suited to your personal circumstances.
FORMS FOR LETTING PROPERTY
FINANCE AND TAX ON RENTAL PROPERTY
RENTAL PROPERTY REGULATIONS
FURNITURE AND FURNISHINGS
HMO (HOUSE IN MULTIPLE OCCUPATION)
TENANCY DEPOSIT SCHEME (TDS)
ENERGY PERFORMANCE CERTIFICATES
COMMUNAL HEATING REGULATIONS
INVESTING IN BTL PROPERTY
A GUIDE FOR NEW LANDLORDS
WHICH PERIOD OF PROPERTY
BUYING OFF PLAN
KNOWING THE RISKS
PROPERTY INVESTMENT CLUBS
MANAGING RENTAL PROPERTY
GIVING NOTICE TO LEAVE
NON - PAYMENT OF RENT
GETTING YOUR MONEY BACK
THE TENANT WONT MOVE OUT
THE TENANT DOES A BUNK
RAISING THE RENT
REDUCING THE RENT
REPAYING THE TENANCY DEPOSIT
FAIR WEAR AND TEAR
MOULD AND CONDENSATION
MAINTENANCE OF A RENTAL PROPERTY
LETTING RENTAL PROPERTY
TEN STEPS TO LETTING
WRITING A LETTING ADVERT
FURNISHING A PROPERTY
LETTING AGENT OR DIY
SELECTING A LETTING AGENT
TENANTS ON BENEFITS
LETTING TO STUDENTS
PREPARING AN INVENTORY
RIGHT TO RENT GUIDANCE
TERMS OF A TENANCY
LENGTH OF A TENANCY
RESPONSIBILITY FOR REPAIR AND MAINTENANCE
TENANCIES IN SCOTLAND
LETTING TO TENANTS WITH PETS
LANDLORDS' WATER RESPONSIBILITIES
LEGISLATION OF LETTING PROPERTY
TENANCY DEPOSIT DISPUTES
ALTERNATIVE DISPUTE RESOLUTION
HOUSING ACT APPEAL DISPUTES
THE LANDS TRIBUNAL
RIGHTS OF LIGHT APPLICATION
APPEALS FROM LEASEHOLD VALUATION TRIBUNALS (LVT's)
POSSESSION - SECTION 8 NOTICE
POSSESSION - SECTION 21 NOTICE
SECTION 21 TIMETABLE AND PROCESS
GROUNDS FOR POSSESSION
PREPARING FOR A POSSESSION HEARING
HARASSMENT BY LANDLORDS
RENT DISPUTES BETWEEN LANDLORD & TENANT
FAIR RENT (RAC)
MARKET RENT UNDER AST
LEASEHOLD VALUATION TRIBUNALS
MODIFICATION OF RESTRICTIVE COVENANTS