TO BUY OR NOT TO BUY, .....?
Date Posted: 28/1/2009
TO BUY OR NOT TO BUY, THAT IS THE QUESTION?
(With apologies to William Shakespeare)
Commercial property values have taken a well publicised bashing over the last 12 months. So, does this make it a good or bad time to invest in commercial and industrial property? It’s all a matter of timing, of course, but if you took the decision to buy say 10 years ago you will be sitting pretty with the asset value probably up say circa 50% and the rental income having paid off most of any mortgage you may have taken out.
The merits of buying property are obviously relative to other forms of investment, e.g. stocks and shares. If commercial property fell by say 10 – 15% in 2008 then by comparison the stock market fell by approximately 30%. Investing in say an Icelandic bank is, with hindsight, very risky and with interest rates now at a record low level (bank base rate reduced to just 1% on 5 February 09) the returns are pretty dismal too.
Philip Nell, head of retail property funds at AVIVA Investors is quoted as saying "The recent significant falls in interest rates are finally having an effect on the UK commercial property industry - not in the way in which they were intended to, by reducing the cost of debt generally available to the economy, but by making cash look such a poor investment option. Will 2009 be the year to dust off your cheque book?"
Some of the well respected big guys are back in the market too. Helical Bar has raised £27.7 million of equity apparently to snap up bargain deals. Chief Executive Mike Slade said "We believe that the exceptional market conditions will present buying opportunities that arise only once or twice in a property career.
We have already built up our own cash resources, have a robust balance sheet and joint venture arrangements with well capitalised partners that will enable us to make acquisitions.
However, we consider the scope and scale of the opportunities that should arise in the coming months will offer such compelling value that we have decided to raise additional capital".
Buying now, at what looks like close to the lowest point in the cycle, and getting a gross rental return of circa 7 – 9% is beginning to look attractive. Bought through a SIPP or other pension plan structure makes it very tax efficient too. Whilst dear old Gordon Brown continues with his £5 billion a year tax grab from the pension industry, the income and capital growth from a commercial property in a SIPP remains intact. So, if you are a small to medium investor with your cash now getting a derisory rate of interest, why not take a look at investing in commercial or industrial property. From where I’m sitting it’s beginning to look quite an attractive proposition.