The temptations of overseas property

This month’s launch of the New Star International Property fund promises to be one of the most significant of the year for the industry as a whole.

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Commercial property, which is what the fund will be investing in, has been the runaway best-seller of the last financial year. But virtually all the money that has been invested has gone into UK commercial property, because there have been few overseas outlets for those seeking international exposure.
There is now a growing belief that the mouth-watering returns that attracted investors into UK commercial property are coming to an end and that future returns will be much more pedestrian. In the light of that a number of advisers have been suggesting that their clients look further afield to gain their property exposure.
If they do the New Star fund will be an obvious candidate, says Brian Dennehy, of Dennehy Weller & Co, the independent financial adviser. He says: “It is the first fund to offer private investors the chance to put their money into international bricks and mortar, as opposed to international property shares.”
He adds: “We think this is an attractive fund, especially for investors whose current property portfolio is a bit UK-centric. UK commercial property has had a fantastic run but it can’t carry on at the same rate and overseas property now offers greater potential.”
The New Star fund will invest primarily in Europe and Asia, putting about 80 per cent of investors’ money into physical property, with a further 10 to 15 per cent in property shares or real estate investment trusts (Reits) and the remainder in cash. The expected yield is about 4 per cent.
Mark Dampier, of Hargreaves Lansdown, another IFA, accepts that overseas property currently looks better value than UK property, but offers some words of cuation for those tempted to dive in.
He says: “It will take time to build up a meaningful portfolio of property spread around the globe and the buying and selling costs could be quite high. The other side of the coin is that once you have built up a sizeable portfolio it is an illiquid asset and it can be tricky for investors to get their money out if everyone rushes for the exit at the same time.

Comments

[Newton]

What no one seems to have mentioned is that I understand that the yield on this trust is estimated to be 4% and that this figure is NET for investments made under the umbrella of an Individual Savings Account because it is regarded by HMG Revenue as interest not dividend payments. Therefore, along with bond funds this investment might make eminent sense to a retire wanting a decent income with the prospects of some growth.