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Real Estate Investment Trusts
Chelsea Financial Services
Ever since the global financial crisis wiped trillions off the global stock markets making many pension products near-worthless, we have all been clambering the find better ways to secure our future. Property has become a popular investment because it is less volatile than the stock market and offers strong secure returns. Self invested personal pensions have become very popular along with Isas, both of which offer attractive financial incentives for investors and allow them to manage their own investments including property investment.
SIPPs have been arguably more popular, but with one drawback; SIPP investors are limited to investing only in commercial property. Isas also carried this limitation that is until now. Up until now, most property investments have had to be via a commercial property fund. These either invest directly in bricks and mortar, though some will instead hold shares or property companies.
However, there are now specialist tax structures called property authorised investment funds (PAIFs), and real estate investment trusts (Reits) – basically a property investment trust which is listed on the stock market.
These are essentially pooled funds that can invest in both commercial and residential property. The structures are attractive because investments held within these structures don't have to pay corporate tax on their income or gains, potentially boosting returns for investors. These can either be bought direct, or many now can be purchased via an Isa, protecting investors from capital gains and reducing the tax due on any income received.
So far there are 2 new Isa residential products: the T M Hearthstone UK Residential Property fund invests in homes of varying sizes nationwide and the Castle Trust's HouSA, which tracks the Halifax house price index and can pay a fixed quarterly income, regardless of performance.
Darius McDermott, the managing director of Chelsea Financial Services, the investment broker, said these products provide more diversification than buy-to-let by not being dependent on any one location.
He said: "The HouSA is illiquid, so if you go into a 10-year tranche and your circumstances change you can't guarantee to get your money out. It's not for everyone and we are broadly positive on it. With the Hearthstone fund, we like the fact that there is no gearing, as it buys properties outright, but the charges aren't cheap."
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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.