There has been no hotter investment topic in recent months than property. Commercial property syndicates are being formed by higher networth professionals who on their own may not be able to buy million-pound industrial or retail units, but when put into an investment partnership with up to a dozen others are suddenly looking at the sort of property that was once the preserve of institutions.
Nevertheless, there is an element of risk in buying a single property and property returns are very cyclical. Property is moving up the cycle at the moment and low inflation/interest rates provide a good climate for property investment. The cost of direct property investment can also be a downside since property syndicates don't necessarily come cheap lawyers, accountants, financial advisers and property consultants must all get their cut. A firm of professional letting agents is also usually engaged to administer the property.
Property funds that represent a number of commercial units are an alternative to direct investment and are already well-known to anyone who has ever bought into a life assurance managed savings or pension fund. In such a case property makes up part of a "basket" that includes equities, cash and government stock or gilts. Over the long term, equities tend to outperform all other investment vehicles that make up the ubiquitous managed fund and certainly in recent years would have represented the largest part of such a fund. But many financial advisers argue that as with equities, there is justification for holding property funds separately in order to round out an investment portfolio and spread risk.
BCP Stockbrokers, which has been bullish on property funds for a number of years, has set up a British/Irish Commercial Property Fund which it believes represents a less risky and cheaper way to invest in the booming commercial property market in the two islands. "Investors trading real property incur fees of up to 11 per cent in charges and stamp duty on the purchase and resale." A property fund involves low single digit entry fees. Another advantage, BCP says, is: "These are roll-up funds i.e. the rent is incorporated into the unit price. The fund manager pays all taxes, both income (at the standard rate) and capital gains tax so that investors enjoy fully tax-paid returns. As funds pay income tax at 24 per cent, there is a tax advantage on the rental income to a 48 per cent taxpayer when compared to direct ownership."
Capital returns from Irish commercial property have been rising since 1993, exceeding rental growth between 1993 and 1996, when overall returns of 19 per cent were achieved.
Rental growth increased significantly in 1997-98 and there is no sign of any let-up, according to BCP which concludes that strong economic growth and a shortage of quality investment property means that "there is very little risk to be taken in a traditionally safe investment sector, while strong and safe returns should be a feature of the next two or three years". The only question now, and one that should be considered with an independent financial adviser, is whether you go for the single property investment or spread your risk and opt for the designated property fund. For more information about the BCP Commercial Property Fund, contact BCP Stockbrokers and Fund Managers at (01) 6684688.
