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.
These funds either own properties outright, awarding returns based on rental income and increases in the value of the buildings (direct investment), or trade shares in property companies listed on the stock exchange (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.
That's not to say it's without risks. In 2008, commercial property prices fell by 44 per cent as the sub-prime mortgage crisis in the US triggered further crises around the world. In areas outside London, prices remain around 40 per cent lower than at their 2007 peak.
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.
When an investment fund issues a fixed number of shares it is called a closed-end fund. Unlike open-ended trusts, if a member wants to either buy into or sell out of the fund he must do it through the stock market. The tax on dividends is the same as for most other investments, i.e. 10 or 32.5 per cent.
Returns on commercial property investments are beginning to pick up noticeably. The demand for offices and shops is steadily growing, in line with the gradual recovery we are seeing in the economy. Interest from overseas investment funds is also having an effect on share prices.
These funds either own properties outright, awarding returns based on rental income and increases in the value of the buildings (direct investment), or trade shares in property companies listed on the stock exchange (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.
That's not to say it's without risks. In 2008, commercial property prices fell by 44 per cent as the sub-prime mortgage crisis in the US triggered further crises around the world. In areas outside London, prices remain around 40 per cent lower than at their 2007 peak.
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.
When an investment fund issues a fixed number of shares it is called a closed-end fund. Unlike open-ended trusts, if a member wants to either buy into or sell out of the fund he must do it through the stock market. The tax on dividends is the same as for most other investments, i.e. 10 or 32.5 per cent.
Returns on commercial property investments are beginning to pick up noticeably. The demand for offices and shops is steadily growing, in line with the gradual recovery we are seeing in the economy. Interest from overseas investment funds is also having an effect on share prices.
About the Author:
If you are interested in knowing more about commercial property for sale, visit the blog. www.housemarketwatcher.co.uk has all the latest info on commercial investment , public houses and industry news.
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