The Alternative Approach to Property Funds
Why is everyone talking about property funds?
You can invest directly or indirectly into commercial property funds.
Investing directly or sometimes referred to as direct or ‘bricks and mortar’ commercial property funds refers to direct commercial property investment, meaning that actual physical properties are bought by the fund. Risk is spread across a number of different properties and, therefore, if one property is not occupied and not earning income from rent, others within the fund can generate income.
The returns come from a combination of the increased value of the properties in the fund and the rental income.
Investing in indirect commercial property funds usually are in the form of unit trusts and oeics purchasing shares in companies that invest in property. The shares are listed on the stock exchange and traded on a daily basis and because of this, there are no liquidity problems. This means you can move in and out of the fund with ease, unlike direct commercial property funds.
The returns of such funds come from an increase in the share price and dividend income in just the same way you would gain from any other investment in shares, as oppose to relying on property price increases and rental income investing directly into property.
Property has been a top performing investment for some time but investors have been reducing their holdings since the beginning of the year.
Fears of the impact of Brexit have been an influencing factor in the rush to take money out of UK property.
It takes a lot of time to sell physical property: you can’t get your money out as quickly as shares or bonds.
Some property funds have put a halt to investors accessing their investments in the short term, as they may need to sell properties first to raise money to create liquidity.