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.
Collective investment funds will invest money in one of two ways: directly or indirectly. Both spread the risk, although direct investment in bricks and mortar is less vulnerable to the whims of the market than 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.
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.
Commercial property prices are now recovering after the sub-prime mortgage crisis of 2008, and an increase in revenue from rents is expected as economic conditions improve. Furthermore, the recent lack of investment in property should increase the value of existing buildings.
Collective investment funds will invest money in one of two ways: directly or indirectly. Both spread the risk, although direct investment in bricks and mortar is less vulnerable to the whims of the market than 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.
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.
Commercial property prices are now recovering after the sub-prime mortgage crisis of 2008, and an increase in revenue from rents is expected as economic conditions improve. Furthermore, the recent lack of investment in property should increase the value of existing buildings.
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