group establishes private investment company to give sipp holders access to buy-to-let market
Sipp holders will be able to invest in residential property for the first time under a scheme offered by Teather & Greenwood.
T&G has established a separate property investment company, Property Investment for Pensions (Pipp), to attract inflows from pension funds into the London property market. The idea behind the fund is to give private investors access to London's buy-to-let market without them having to take on the burden of actually becoming landlords.
Pipp is due to be listed on Aim in late April 2003. The Inland Revenue has confirmed that shares in an Aim-traded company that invests in residential property are qualifying investments for Sipps and small self-administered schemes (Ssas) and also allowable for funded unapproved benefit schemes (Furbs).
Director of T&G Martin Sherwood said in light of the recent volatility of equity markets, there is currently a significant amount of uninvested cash lying in Sipps, and the recent success of the buy-to-let market has shown residential property may be a popular source for much of this money. Over the past seven calendar years, residential property in the greater London area has offered a superior growth rate to UK equities, with property prices rising by an average of 18.8% per annum compared to a 1.0% annual increase from the FTSE 100.
Pipp will be managed by Invest-in-Property, an organisation specialising in assembling residential portfolios and currently letting and managing around £220m of residential property in greater London on behalf of clients.
Chairman of Invest-in-Property Andrew Reeves believes the housing market is currently in a plateau phase, having enjoyed strong growth in recent years, but expects the Greater London market to pick up again in autumn because of continuing demand.
London suburbs and Bromley will be the key target areas for Pipp purchases, offering stable rental demand and consistent capital growth in recent years.
In addition to property management, Invest-in-Property is also involved in letting properties, allowing the company to tailor its portfolios in line with rental demand, according to Reeves. 'In our view, core rental demand in these areas is likely to remain with one-bedroom flats rather than more luxury accommodation. With that in mind, we will be looking to buy those kind of properties in our target areas and furnish them to above-average specifications to introduce high quality products to this middle area of the market,' he said.
Investment in the fund is designed to be a five to seven-year play, as Reeves believes it is hard to predict exactly how the market will look at the end of five years. The inbuilt flexibility gives the two companies a chance to look at returns after five years and extend the investment period if necessary.
At the end of the period, there are three basic choices for realising the investment, namely selling the individual properties individually for full market value, selling the entire portfolio with a possible discount for the convenience of a single sale, or selling the company itself to another player in the residential property sector.
T&G aims to raise up to £20m for Pipp through a share offer that opened on 20 March and will close on the earlier of 25 April or when full subscription is reached. During the offer period, the price will be 100p per share.
Minimum investment into the scheme is £10,000 and investors should receive income tax relief of up to 40% on their investment into an approved pension fund. Any capital gains within an approved pension structure will also be tax free. Intermediary commission on the product is 2.5%.
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