New property funds offer exotic investment options
Prices and Analyses
The Eastern European Investment fund launched by investment house Collins Stewart aims to buy shops and offices in the key areas of the Balkans - notably Bulgaria, Romania and Turkey. Collins Stewart said commercial property in these countries is still underpriced and will produce above average income. The fund aims for a 7.5 per cent dividend yield when fully invested. The closed-ended Guernsey fund made its debut on London's Alternative Investment Market in February. Also making its debut, but on the Channel Islands Stock Exchange (CISX) was the D&G Asset Management Prime Central London Capital Fund. The fund will invest in prime Central London residential property, where returns are linked to company lettings and City high flyers. The fund is structured as a Guernsey domiciled open-ended unit trust, with independent administrators and custodians, and is restricted to specialist investors. with at least ?25,000 to spare. The managers are Douglas & Gordon, a leading Central London estate agency. Stephen Yorke, chief executive and partner of D&G Asset Management, said: "Since 1979 prime Central London property has produced a better return with less volatility than shares or fixed interest. But during the past four years Central London property price growth has lagged the rest of the country. We think prices will start moving this year, as they tend to move with financial market trends." Channel Island domiciled property funds currently enjoy tax advantages over their UK based counterparts, notably shelter from UK capital gains taxes and the ability to pay out dividends gross out of rental income. From 2007, they will have to compete with UK domiciled Real Estate Investment Trusts (Reits). The UK Budget last month set out the tax regime for Reits which may encourage many UK quoted property companies to convert. However, the choice of Reits will be limited at first, so Channel Island funds will still appeal to investors, including UK residents who can enjoy tax advantages by holding them through self-invested personal pensions (Sipps) Both the new Eastern European Fund and the Prime Central London Fund can be held in Sipps as they meet listing requirements. Investing in residential property through a fund avoids the effective Treasury ban on Sipps holding residential property direct, according to Mr Yorke. He said: "It makes much better sense for an investor or pension trustee to invest in a property fund than a single property as they benefit from a diversified portfolio." During the past few years, top investment houses launched channel islands property funds holding billions of pounds worth of UK commercial property, and much of the popularity of these funds stems from recent performance and their ability to produce above average income. Last year, UK commercial property showed a 19.1 per cent return, its best since 1995. Some Channel Islands funds beat the average returning 25 per cent or more. Investment experts do not believe returns will be as high in future. But they point out that many property funds deliver income that beats cash on deposit and that property is a "must have" feature of a balanced investment portfolio. Source: www.telegraph.co.uk(12.04.2006)