The wealth management arm of fund manager Cordea Savills has established its first residential property fund.
The diversified residential opportunities fund – diverse for short – is a Jersey-domiciled Oeic with a minimum investment of £10,000. It aims for a total return of 8 per cent a year, of which 5 per cent will be income and 3 per cent will be growth.
According to Cordea Savills, the residential market has historically outperformed commercial property. Most people with exposure to residential property have this through buy-to-let schemes, which have performed well in recent years.
However, Cordea Savills notes that buying to let involves the risk of void periods, lack of diversity within a portfolio and the possibility that tenants do not have a good credit record. Add to this a lack of liquidity, potential management difficulties and over-exposure to one geographical area, there may be a gap in the market for a product which bypasses the potential pitfalls.
The diverse fund focuses only on sectors that are not tied directly to movements in house prices. Examples include properties let to housing associations, universities, NHS Trusts and smaller hotels let to quality hotel operators. These offer medium to long-term leases similar to the commercial property sector. Repairing and insuring obligations are placed on the tenant and there will be a fixed or guaranteed rental uplift linked to inflation.
This fund may be suitable for investors who do not want the hassle of buying to let. It will also be attractive self-invested personal pensions as it will enable them to hold residential property ahead of the changes to the pension rules in April 2006.
However, some investors may feel this fund is not sufficiently different from the range of commercial property funds available as there is an overlap with some sectors.