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Braemar offers ground rent fund

Braemar Securities has introduced the Braemar ground rent cell, a Guernsey-based Oeic that aims for income and growth from the ground rents and insurance premium commission on a portfolio of residential, retail and commercial properties.

A ground rent is the rent paid by the owner or leaseholder of a property to the freeholder or head leaseholder of that property. Braemar says the amounts payable as ground rents are usually nominal, for example, between £50 and £250 for an apartment. However, a portfolio of ground rents can provide a stable long-term income stream.

It has established the fund to give sophisticated investors the opportunity to invest in this part of the property market without having to buy and manage properties directly. It will focus on ground rents that have historically had little correlation to traditional property asset classes , with values that have remained consistent regardless of economic conditions.

The properties will have the potential to generate income from ground rents and the receipt of insurance commission. Braemar says the insurance premiums on big apartment developments can be significant and the fund will benefit from some of the commission being rebated by the insurance broker or underwriter.

Potential capital growth will come from contractual increases in ground rents over time . It may also profit from negotiating extensions to leases which are approaching expiry and any development that need the consent of the freeholder.

One of the concerns that investors may have is what would happen if ground rents are not paid. Braemar says leaseholders are unlikely to risk losing properties by not paying this charge and that any lender with an interest in the property is likely to pay the ground rent to ensure its security is not jeopardised. Freeholders are also entitled to interest on overdue ground rent and to the legal costs of recovery.

However, investing in this fund does have risks. It may not be able to buy as many ground rents as expected, which would have a negative impact on profits. Unforseen costs could also have a negative impact on the income and investors would not be eligible for the FSA’s compensation scheme if things went badly wrong.


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