In recent months, the Chancellor has declared war on property investors with a 3% stamp duty levy, an 8% capital gains tax surcharge and the removal of tax relief on borrowings for higher rate taxpayers.
So it is no surprise that investors are looking for other ways to invest in property. You don’t need to have large sums of money to access the investment property market. It is possible to invest as little as £50 per month into a property fund and the contribution is combined with thousands of other investors, with the combined total buying a variety of different commercial properties. To reduce risk, a good property fund will be geographically widespread and will contain a mixture of retail units, shopping centres, office blocks and industrial warehouses, with some funds even including leisure properties.
A property fund provides good diversification from shares, as the rental income provides a steady return for investors, with the possibility of capital growth as the value of the properties increases. These funds can be held inside pensions, ISAs, bonds or as a normal investment account and the rent can be tax-free inside an ISA or reclaimed by a non-taxpayer.
There are still some risks. Firstly, a high vacancy rate on the property fund will reduce the rental return. Secondly, property can sometimes be difficult to sell and fund managers reserve the right to delay paying investors their money under poor market conditions. Thirdly, as we have seen in the last eight years, capital values can fall significantly.
Provided investors are comfortable with these risks, commercial property funds offer a simple and low cost way to access a wide range of property with relatively small sums of money. If you are thinking of investing money for the future, then a balanced investment portfolio which contains a range of assets other than shares should be considered in order to reduce risk and commercial property should certainly be included in any portfolio.
David Hill is a Chartered Financial Planner and Independent Financial Adviser at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814 or by email: firstname.lastname@example.org