The UK’s first regulated residential property fund has been launched, allowing investors to tap into the burgeoning private rentals market. With a minimum investment of £1,000, the fund is a low-cost, hassle-free alternative to buy-to-let, which requires a bigger stake and a hands-on approach.
The fund qualifies for tax-efficient ISA and Sipp (pension) investment and will appeal to those who want access to the £4 trillion UK housing sector, which is bigger than equities and UK commercial property combined.
Leading housebuilders Barratt and Bovis are backing the fund, working with fund manager Hearthstone, partly owned by Connells estate agency group and Skipton Building Society, to sell and leaseback a portfolio of showhomes.
Hearthstone believes the medium- to long-term outlook for UK house prices is rosy and that a shortage of homes and growing rental demand will boost prices. The fund will hold about 15 per cent of its assets in cash in order to meet redemptions (when investors demand their money out). Visit email@example.com or call 020 3301 1310.
Until now, investors have been unable to save in a property fund regulated by the FSA and the only choice was direct ownership of bricks and mortar or a commercial property fund.
“The fund is a promising and intriguing prospect,” says Tom Sparke of investment adviser Gibbs Denley. “We’ll have a look at how it gets on and consider using it.”
Some may question the timing of the fund’s launch, when the housing market is being weighed down by restricted mortgage finance and a weak economy. If housing values remain flat for the next few years, the fund’s main return will be rental income, minus the high costs of running a property fund. Investors have to pay an annual management charge of 1.5 per cent.
On average, UK house prices fell 2.6 per cent in 2011, according to Halifax. Currently, the average house price stands at £162,126, down from £196,478 in 2007.
Investing in London property may appeal to more investors but options are limited. London & Stamford Property, a real estate investment trust, focuses on prime residential property in central London. This fund is currently offering a return of just under six per cent.
Another niche company with good long term performance is London Central Portfolio (LCP), which has an impressive track record of achieving consistently high returns (typically 10-13 per cent per annum) by focusing on prime areas of the capital surrounding Hyde Park.
Hearthstone: firstname.lastname@example.org; 020 3301 1310
London & Stamford Property: londonandstamford.com
London Central Portfolio: londoncentralportfolio.com