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Close property fund returns independent of recovery

Close Asset Management has established a property fund that will benefit from a recovery in residential property but is not dependant on this to generate returns.

The residential growth partnership is available as an exempt unit trust for self-invested personal pension and small self-administered scheme investors, or as a limited partnership for direct investments.

The fund aims for a return of 8 per cent a year over five years by investing in English residential properties that are let to the over 60s on lifetime leases. The average property value is £150,000 and there are 100 properties in the fund. Returns from the fund will be paid as capital growth at the end of the fund’s five-year life and there will be no gearing.

To access this area of the market, Close has partnered with Homewise, a family run company that has specialised in life tenancies to the over 60s for more than 30 years.

A Homewise lifetime tenancy enables people over 60 to buy property at an age-related discount to the open market value, so that the older the tenants are, the less they pay.

For example, if a property is valued at £100,000 on the open market, the life tenants aged 72 could buy it for £56,600, so the fund pays £43,400 for the property with the life tenant. The fund will only buy properties that already have life tenants in place and when properties are vacated because the tenants die or move to care homes, the property will revert to the fund. By this time, the fund could also benefit from rising house prices.

Property values have fallen and the short-term outlook for house prices is uncertain. Close believes there will be a sustained recovery in 2011, but investors who are looking at property investment for diversification may be cautious of market conditions. This fund could be useful in these circumstances because it will generate returns in the run-up to a recovery.

There is no guarantee that a buyer will be found for the property portfolio to enable investors to exit after five years, but Close is an experienced property investor and says it had a lot of interest from buyers when previous funds such as the Capital Appreciation Trust were wound up.

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Comments

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  1. This sounds like a secure investment strategy for the fund. Perhaps I’m in weekend mode still, but it’s unclear to me exactly how the property is transacted once it becomes vacant. In the above example, how is the remaining £56,600 equity transferred to the fund? Do they take finance against it?

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