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Property finds a footing

Outflows, liquidity and lock-ins have been the three buzzwords that have summed up the troubled property sector over the past two years.

After double-digit returns from what many considered to be a safe-haven asset class, advisers were left feeling the pain as asset values fell rapidly and the stampede to escape from a number of funds was quickly greeted with notice periods.

Sentiment since then has been against such assets, and with the best fund in the IMA property sector down 16.7 per cent over three years, who can blame investors and advisers for shunning them.

But could the tide be turning? Not only are a number of property funds starting to offer a steady income at a time when questions are being raised over future dividend from income funds, but there is a belief that some much-needed stability is coming to the sector.

Henderson New Star director of UK property Marcus Langlands Pearse believes we are either at or approaching the bottom of the property market.

He says that following the acceleration of the doomsday scenario in 2008, yields have begun to stabilise for prime property stocks.

He says: “There seems to be a bottom appearing for these stocks in the market and we are starting to see buyers from the UK, overseas and institutions, meaning there is now competition for property – something there has not been in recent times.”

Ignis UK property fund manager George Shaw believes the impact of quantitative easing should see investors start to anticipate inflation, with tangible assets and income the key components for future investment.

He says: “Portfolios with a high, stable and secure income stream are likely to outperform over the next two to three years, which is a benefit commercial property as an asset class can offer.

“Security and length of income stream are vital during challenging market conditions. We have been working with tenants and external consultants to secure lease renewals, achieve successful rent reviews and minimise vacancies.

“Careful scrutiny of the financial strength of our tenants has ensured a low level of vacancy in the Ignis UK property fund.”

But Langlands Pearse adds a word of caution, saying: “It is important to note however that some of the inherent dangers are still there, such as rental growth and the state of the banks.”

So is it time for advisers to start thinking about property as a diversifier again? Or is the pain from last time all too fresh in people’s minds?

Hargreaves Lansdown head of research Mark Dampier has long been a detractor of property funds. He feels the situation has improved but that there will be no rapid turn-round.

“Banks are up to their eyes in property and there is still a gamble as rental yields are under pressure. I agree that it has got more interesting but the big question is what do you buy given that a lot of funds have had to sell some of their best properties to improve liquidity.”

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