At a time when cash savings are yielding negligible returns, many people are looking at investment funds as a way of making their money work for them. Commercial property, in particular, is predicted to deliver strong returns in the coming months. Obviously, none but the wealthiest individuals can buy a commercial property straight-out, so the way that most of us get exposure is through a collective investment fund which invests on behalf of its members.
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).
Commercial property, such as shops, offices and industrial buildings, has several advantages over residential. Firstly, the average life of a commercial lease in the UK is eight years, as opposed to six months; secondly, the tenants are less likely to flit; thirdly, the rents themselves are much higher and subject to annual increases.
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).
Property investment funds can be either open-ended or closed-ended. Open-ended investments may issue or redeem any number of units (in the case of unit trusts) or shares to their members at any time; the underlying assets are simply added to or sold off according to demand. This can lead to problems if someone wants to exit at a time when the value of assets is low.
Most open-ended trusts are also registered as real estate investment trusts (REITs). This ensures higher returns to investors, but the tax on dividends will be 20 per cent basic or 40 per cent for higher rate earners.
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).
Commercial property, such as shops, offices and industrial buildings, has several advantages over residential. Firstly, the average life of a commercial lease in the UK is eight years, as opposed to six months; secondly, the tenants are less likely to flit; thirdly, the rents themselves are much higher and subject to annual increases.
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).
Property investment funds can be either open-ended or closed-ended. Open-ended investments may issue or redeem any number of units (in the case of unit trusts) or shares to their members at any time; the underlying assets are simply added to or sold off according to demand. This can lead to problems if someone wants to exit at a time when the value of assets is low.
Most open-ended trusts are also registered as real estate investment trusts (REITs). This ensures higher returns to investors, but the tax on dividends will be 20 per cent basic or 40 per cent for higher rate earners.
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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