More financial advisers think their clients should consider commercial property as an investment compared with residential property, according to a new survey. Only 39% of independent financial advisors questioned in April think investors should consider residential property compared with 51% quizzed in January, the survey commissioned by Reita, the education and awareness campaign for quoted property and REITs, found.
In contrast, 66% of IFAs believe commercial property prices will rise by up to 14% in the next twelve months, compared with 59% in October 2009 and only 24% in July 2009. Only 8% believe prices will fall during the same period compared with 12% in October 2009 and 40% in July 2009.
Increasing expectations for property prices are feeding through to IFAs’ confidence in advising clients on how to choose between different property sectors. In October 2009, 33% were confident in advising and this has now risen to 41%. At the same time, the number who aren’t confident has decreased from 59% in October 2009 to 44% now.
The result indicates that financial advisors may believe that recent property price rises in the UK are not sustainable. ‘The drop in confidence in the residential housing market, whilst quite large, is perhaps to be expected given the uncertainty surrounding the economy. It also prudently reflects doubts as to whether recent rises in house prices can be sustained,’ said Dave Butler, director of corporate affairs at Grainger plc.
‘Threats to raise capital gains tax (CGT) rates may also have raised concerns amongst some residential investors, particularly buy to let landlords, but these may also create some interesting buying opportunities for those in the residential market for the long term,’ he explained.
The IPD capital value index is showing clear signs of peaking after a strong run since the middle of 2009, Patrick Summer, chairman of Reita, points out. ‘Behind the average, however, there is a clear gap between prime, well let assets and secondary,’ he said. However, IFAs are still largely unconcerned that the rise in commercial property values will increase the risk of excessive demand for property funds.
‘The price rises reflect a recovery in financial markets more than in the wider economy and occupational demand and demand for property stocks is unlikely to improve, at least among general equities funds, until rental growth turns positive. Outside London, that is still some way off,’ added Summer.
Peter Cosmetatos, programme director of Reita, points out that the survey was conducted before the debt crisis in Europe became headline news and that advisors may have been more upbeat than they are now.
‘It will be interesting to see, in the next set of IFA survey results in July, whether all this upheaval will have any impact on IFA expectations and sentiment. We do not expect the caution, which has significantly diminished in the last nine months, will disappear altogether, as the recovery of property prices is patchy, across different sectors and regionally,’ he said.
‘However, with continuing uncertainty in stock markets, and interest rates continuing at record low levels, we still believe IFAs and their clients should consider REITs and other property funds as a medium to long term investment,’ he added.
