Type: Offshore Oeic
Aim: Income and growth by investing in residential property
Minimum investment: Lump sum 10,000
Investment split: 100% in residential property
Place of registration: Jersey
Charges: Initial 5%, annual 1.25%
Commission: Initial 2%, renewal 0.25%
Tel: 020 7877 4700
The diversified residential opportunities fund diverse for short – is a Jersey-domiciled Oeic which aims for a total return of 8 per cent a year by investing in a portfolio of residential properties within sectors that are not tied directly to movements in house prices.
Charter Devon Law & Co principal Michael Posner says: “This is a new Oeic property fund, incorporated in Jersey, and created by Cordea Savills Wealth Management part of the Savills Group. The fund management arm of the group has been established to provide a range of specialised property investment opportunities to private investors.”
Posner highlights the aim of the diverse fund as to invest in the residential property market, which is stated in the literature to be more than eight times the size of the commercial property market. He explains: “The fund has, in essence, been launched to compete with the buy-to-let market and seeks to overcome such things as rental voids stated by the Association of Rental Letting Agents to average 29 days per year. It also removes the investors property management risks.
“Savills Residential Research has estimated that, of the total residential property market of 3,300 billion, the rental market sector accounts for some 250 billion. Naturally, its view is that our clients should be using Savills undoubted expertise to access this market and include residential property in their portfolios.”
Posner points out that the intention is for the fund to invest in blocks of flats or groups of houses let on long leases to such credit-worthy bodies as housing associations, NHS trusts and universities. However, he states Cordea Savills can retain the option to buy whatever property it finds appealing, if it looks likely to fulfil the funds investment objectives. “Cordea Savills quite properly point out that commercial property can have a lower residual value at the end of a lease, whereas residential property usually has a higher vacant possession residual value,” says Posner.
The target return of 8 per cent is made up of a 5 per cent income target with a 3 per cent growth target in the cpaital value of the fund which Posner views as conservative. He says: “This does seem achieveable, even during a period when we are facing a potential slow-down in property values. The fund is open to overseas investors, private investors, and UK exempt investors such as charities, self-invested personal pensions and small self-administered schemes.”
Posner feels this fund must be of interest to Sipp investors, as it gives access to residential property investment prior to the pension changes next April. “Income may either be taken or re-invested, and like all property funds, it is intended that investment should be for the medium to long term,” says Posner. He praises the product literature as sufficiently detailed, well presented, and for clearly explaining the benefits and any pitfalls of the fund.
Considering the negative aspects of the fund Posner says: “There is very little to dislike about this offering, as it clearly fills a niche for those who wish to get into the buy-to-let market, while not wanting to manage and maintain the property themselves. While it may be the case that residential property may decline in value in the near future, it has a tendency to rapidly re-value upwards at irregular intervals as we have recently seen.”
As this is a new fund, Posner points out that any short-term falls in property prices should benefit the fund managers as they create the portfolio, but may make the capital growth target a little erratic. He says: “There is an initial lock-in of capital for twelve months, but thereafter shares will be redeemable on a monthly basis. Because Cordea Savills objective is to hold property on long leases with strong covenants where possible, it states that it may take on external bank debt of up to 70 per cent. This may be a little too highly geared for some investors.”
In conclusion, Posner does not see any particular product providing competition. He says: “While there are a number of excellent property funds, this offers direct investment into residential property.”
Suitability to market Good
Investment strategy Good
Adviser remuneration Average