Property – the British Obsession
Property – the British Obsession is a guest post by award winning freelance journalist Philip Scott
The British obsession with all things property related is showing no signs of abating.
The latest numbers from the Halifax show that annual house price inflation was averaging 7.9% in the three months to July.
The ebullience has not been lost on commercial property investors either as billions has been – and still is – being ploughed into bricks and mortar funds.
Last year property vehicles enjoyed their highest-ever sales tally, with no less than £3.8bn squirreled away into these portfolios, according to the numbers from trade body the Investment Association.
Their popularity has spilled over into 2015 too, with almost £1.6bn in sales notched up in the first half of the year. In July, the sector remained firmly in the top five, in terms of fund sector sales, after notching up £293m over the month.
Much of this cash has been flowing into physical property funds as opposed to those that invest in the shares of property firms, given the latter types correlation to equity markets. As a result, in some cases funds have been awash with cash on the back of fund managers looking to strike deals.
This dash for property funds should come with little surprise. After all it is an income producing asset class, with a low correlation to stock markets. It gives investors the chance to spread their cash over a wide variety of properties, such as offices and retail parks, and the rents paid by tenants can provide a very stable yield.
On the other hand the prospect of higher interest rates has made bonds, another income producing asset class with a low correlation to equities but one which is even more sensitive to monetary policy alterations, appear almost toxic to many.
As such, given the fiscal cloud hanging over fixed income markets, property funds have proved to be a decent bond proxy play for many – after all while the yield on offer from gilts has collapsed to near negligible levels, investors can get a around 3% plus from a property fund – as well as capital growth.
Of course property has not always worked in investors’ favour. Up until the onset of the crisis, many were enjoying robust returns and had been doing so for multiple years. But when the credit crunch came, performance nosedived as investors in their droves tried to cash out of a largely illiquid asset class.
Between June 2007 and July 2009, British commercial property values fell by more than 44 per cent, according to the IPD, marking the sharpest decline it had ever witnessed.
But since the nadir, their turnaround in fortunes has been significant. While soaring bull-market equity type returns are never going to be the case, in comparison to their fixed income cousins, the appeal of bricks and mortar becomes quite understandable.
Take some of the more popular and recommended plays in the sector. The £3.72bn Henderson UK Property fund, which last year snapped up the headquarters of private bank Coutts & Co on The Strand, yields 3% and has returned a decent 42% over the past five years to 4 September according to FE Analytics.
Elsewhere, the often highlighted £1.52bn Ignis UK Property PAIF, now part of Standard Life Investments, boasts a 3.3% historic yield and has achieved a 31% return over the same period. Over in the closed-end space the £1.34bn F&C Commercial Property Trust, which carries a net dividend yield 4.2%, has soared by 109%.
Given the market backdrop over recent years, many fund managers have been very vocal in urging that post-crisis the asset class has returned to its roots – being an income generator – and while capital values have risen, in some cases significantly so, many believe this should ease back into a more sensible pattern of price inflation in the coming years. Time will tell…
Philip Scott is an award-winning freelance financial journalist* and author.
He writes regularly for a number of trade and consumer titles. He began his career in 2002 in local press. He has written for among others Money Marketing, Investment Week, Citywire, Investment Adviser, Moneywise, The Sunday Times and The Daily Mail’s thisismoney.co.uk.
*Investment Association Freelance Investment Journalist of the year (2014)
Property – the British Obsession is a wealth management related guest post and the views here do not necessarily concur with those of Investment Quorum. In fact, it is very often the case that we may largely be in disagreement but we respect the opinions and views of others and value their contribution to the wealth management debate. Guest posts may appeal more to some than others and may often hav an industry or sector knowledge expectation.
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