There's a general feeling amongst market commentators that the time is right to invest in property. Whilst most of us are aware of the buy-to-let sector, we don't tend to think about commercial holdings. Buying a house is within reach for many investors, but buying a city centre car park isn't. That's where collective investments come in.
An investment fund may either buy into a portfolio of properties, spreading the risk so that if one building stands empty there's still rental income from the others (direct investment), or buy shares in companies that are property related (indirect investment).
Direct investment trusts physically purchase a range of buildings of varying quality. Rewards are earned in the form of rental income from tenants and capital growth from the increase in value of the properties. A major drawback is the illiquidity of the market: it can take months to buy or sell a property. Furthermore, in 'exceptional circumstances' the fund manager is able to suspend trading for 28 days whilst they try to raise cash to redeem investors. This period may be renewed until money becomes available.
There are risks associated with direct property investment. In 2008, when America's sub-prime mortgage crisis sent waves of panic around the world, the value of some commercial property funds in the UK fell by up to half.
Indirect investment funds are even more vulnerable to the whims of the market as they don't enjoy the same benefits of diversification. Most take the form of unit trusts and open-ended investment companies (OEICs).
Both types of fund are open-ended, in that there's no limit to the amount of capital that may be invested. The fund manager will simply buy and sell property according to demand. Investors don't have to trade shares on the stock exchange, the fund manager sells them their holdings and then buys them back any time they wish to join or leave the fund.
The majority of open-ended funds are also real estate investment trusts. In essence, this means that they don't pay corporation tax on assets, as long as they pay at least 90 per cent of profits to their shareholders. Dividends are taxed at either 20 or 40 per cent.
Closed-ended investment trusts, on the other hand, issue a fixed number of shares when they're created. Members buy and sell shares on the stock market, ensuring that the fund manager always has a set amount of money at their disposal. Investment trusts can also take advantage of gearing to boost returns. The tax on dividends is either 10 or 32.5 per cent.
The current yields on commercial property compare well to those of other asset classes. The recent lack of investment in building projects has resulted in an increasing demand for office and retail space as the economy recovers. Strong interest from overseas investors is also creating movement.
An investment fund may either buy into a portfolio of properties, spreading the risk so that if one building stands empty there's still rental income from the others (direct investment), or buy shares in companies that are property related (indirect investment).
Direct investment trusts physically purchase a range of buildings of varying quality. Rewards are earned in the form of rental income from tenants and capital growth from the increase in value of the properties. A major drawback is the illiquidity of the market: it can take months to buy or sell a property. Furthermore, in 'exceptional circumstances' the fund manager is able to suspend trading for 28 days whilst they try to raise cash to redeem investors. This period may be renewed until money becomes available.
There are risks associated with direct property investment. In 2008, when America's sub-prime mortgage crisis sent waves of panic around the world, the value of some commercial property funds in the UK fell by up to half.
Indirect investment funds are even more vulnerable to the whims of the market as they don't enjoy the same benefits of diversification. Most take the form of unit trusts and open-ended investment companies (OEICs).
Both types of fund are open-ended, in that there's no limit to the amount of capital that may be invested. The fund manager will simply buy and sell property according to demand. Investors don't have to trade shares on the stock exchange, the fund manager sells them their holdings and then buys them back any time they wish to join or leave the fund.
The majority of open-ended funds are also real estate investment trusts. In essence, this means that they don't pay corporation tax on assets, as long as they pay at least 90 per cent of profits to their shareholders. Dividends are taxed at either 20 or 40 per cent.
Closed-ended investment trusts, on the other hand, issue a fixed number of shares when they're created. Members buy and sell shares on the stock market, ensuring that the fund manager always has a set amount of money at their disposal. Investment trusts can also take advantage of gearing to boost returns. The tax on dividends is either 10 or 32.5 per cent.
The current yields on commercial property compare well to those of other asset classes. The recent lack of investment in building projects has resulted in an increasing demand for office and retail space as the economy recovers. Strong interest from overseas investors is also creating movement.
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