Investment Focus - Property
There are a small number of "asset classes" - the types of investment which are available - and commercial property is one of these. Received wisdom says that anyone with a reasonably sized investment portfolio should consider including a bit of everything, including property.
Unfortunately, property has not done investors many favours in recent years. But many would say that now is the time to look again.There are two aspects to most investments - the growth on the capital sum invested, and the income (or "yield") which it can produce. One of Property's main benefit is for investors wanting an income since, if properly managed, commercial property is let to long term tenants who pay a reliable rent. What happens to the value of the property is less significant in this case.
But even if income is not needed by the investor, the fact that there is a regular addition of the reinvested rent means that a steadily growing investment can be the result.
With the low level of interest rates available from savings and elsewhere, income from a property investment held via a unit trust fund, for example, can look more attractive than it might have done a while ago.
However, concerns do remain...
(a) Property funds generally need to hold a proportion of their assets as cash to pay investors who want to redeem their investment, and as we all know, there are poor returns from cash at present.
(b) Even so, liquidity problems can arise when investors want to sell their holdings. During 2009, for example, a number of major property funds would not allow surrenders for a while.
(c) The economy is by no means out of the woods, and as public sector cuts bite, it is possible that more office space will become available, pushing prices down.
All in all, though, it may be worth a look as a small percentage of a portfolio - dependant on the investor's attitude to investment risk - particularly for those who have a larger portfolio invested in other asset classes, and who are sure they are able to put the money out of reach for a number of years.
Last reviewed 22nd March 2011
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