High hopes for property sector as Burj Khalifa opens

Jan 16 2010 Personal Finance by Trevor Law

Reality could well be returning to the sector and property is again starting to be recognised for what it should be doing: offering an attractive income yield and some prospect of capital appreciation in the medium term.

Sarah Arkle, Threadneedle’s chief investment officer, said: “We have seen a bounce back in capital values over the past few months and this is likely to continue into the first quarter of 2010.

“However, over the longer term income is the main driver of property returns and, with interest rates staying low, it is income that will attract investors to the asset class.

“Yields at current levels make property an attractive option for income seekers and we do not see this changing in 2010.”

Finally, Andrew Milligan, head of global strategy at Standard Life Investments agreed there were positive signs for the property sector.

He said: “Our house view is weighting for UK property has increased throughout the year to heavy, reflecting the favourable valuation backdrop plus the improvement in the supply/demand balance.

“The decline in sterling has boosted overseas investor interest in UK prime property.”

So, lots of optimism for this sector in the industry going forward. But, before investors start piling in again, they should remember the lack of liquidity in this type of investment.

The recent bad years resulted in moratoriums on many of the sector’s major funds where investors could not have access to their funds without giving, say, six months notice.

This loss of investor control reminds me of with-profit funds when life offices applied (and, in many cases still do) significant market value reductions (MVRs) effectively forcing investors to leave their money in funds for longer periods than they had originally planned.

These are my main reservations of new monies going back into commercial property but there are good reasons for some cautious optimism, if not fireworks.

So if you want to invest in the sector, maybe doing so via a fund or funds which may have a small exposure without sacrificing liquidity on your behalf, could be an ideal scenario.

Trevor Law is a director with Montpelier Group (Europe) Ltd, the privately-owned independent financial advisers located near Solihull. E-mail: tilaw@montpeliergroup.com