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Domestic dispute

Sam Shaw says IFAs are becoming uneasy over the wave of property funds

The tide of global property funds sweeping into the UK retail market has raised eyebrows as IFAs ponder what this implies about the outlook for domestic property.

Hargreaves Lansdown head of research Mark Dampier has been voicing concerns that the popularity of property as an asset class has pushed up prices with a rash of new funds all chasing the same investments.

If fund groups are looking overseas, does this mean that investors should be wary of domestic property funds?

Dampier says: “I do not know if UK commercial property is not an accident waiting to happen. At every presentation I have been to, these funds are aiming at 10 per cent and people have got stacks of money in these funds. With groups like Fidelity and First State going global because UK markets are overvalued, I do get a nervous twitch. Property may be a wonderful diversifier but I do not want to buy it just as it collapses.”

Dampier says the variety of property investments on offer – ranging from bricks and mortar to property shares – means there is a risk that investors will not fully understand what they are getting into.

Morley Fund Management acknowledges that the sudden shift to global property funds might indicate that the UK is suffering problems but points out that the need to diversify a portfolio means that property investment, UK or globally, still has a strong role to play.

Property product specialist Janet Measom says: “Investors in property have a right to be concerned but unless there is a huge shift in interest rates, for instance, I cannot see a major collapse of the market. Things will settle down but it will be a gradual change over the next few years, nothing dramatic.”

F&C Asset Management suggests that the growing interest in global property funds might be due to the limited supply of suitable properties available to UK retail investors, given the surge in demand over the last few years.

Head of communications Jason Hollands says: “I think this is a case for people needing to differentiate their products. With the large number of UK property fund launches that have taken place in recent years, that market is pretty full. There is only ever a limited supply of suitable existing opportunities that could be made available to retail investors, that are not already tied up by the funds managing those properties.”

Close Property Management managing director Anthony Wyld thinks that trends in the property market are echoing patterns seen in other asset classes. He says: “Globalisation is part of the whole routine. The pursuit of high yield is the driving force and if that means looking elsewhere to countries where a higher yield is more likely because of interest rates and so on, we will see more property investment in other markets.”

Wyld says as long as factors such as currency risk, political unrest and rules on leasing are considered, it makes sense to look beyond the UK for opportunities.

Chelsea Financial Services managing director Darius McDermott says: “Our industry is perpetually guilty of following trends and launching into markets for little more than the belief that they might sell.”

However, he believes there is no need to be concerned as long as points of difference between property funds are clearly marked and intelligent research methods are used. McDermott has been supportive of the recently launched Skandia global property fund because it has outsourced management of the portfolio to global property expert LaSalle.

Dampier is worried about the lack of clarity in the overall property investment market and says advisers are being hampered by a lack of generic information. However, he adds: “As long as advisers are flagging the risks to their clients and pointing out the potential downsides as well as the opportunities for return, they should be OK.”

Alliance & Leicester head of intermediary mortgages Mehrdad Yousefi believes the introduction of real estate investment trusts in the UK could be one answer as they will provide a transparent vehicle for investors.

He says: “Reits will be fantastic when they do arrive. Investors need to realise that it is not simply bricks and mortar they will be investing in. There is a wider, safer opportunity on the horizon.”


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