Hargreaves Lansdown head of research Mark Dampier believes property has become “a boring asset class” and is surprised at the amount of money moving into the sector.
Dampier says some property funds have taken in too much cash, with some holding 25 to 50 per cent in cash, destroying their value as an income-yielding asset.
He says: “Most of the funds are barely yielding 3 per cent because some have as much of half the fund in cash, meaning you get next to nothing. Once you take off costs on other areas, the fund yield does not come to much.”
Last year, Dampier said some people should look to move into the sector following the lows but now warns investors should not pile in. “If you are in it then stay in it but the fact is the cash levels coming in mean that the fund managers cannot get the buildings quick enough. It is causing the exact opposite to the problem seen a couple of years ago. I still feel equity income offers the better option for yield.”