domiciled in jersey, the fund aims to acquire residential properties that are in process of development and guarantees geared exposure
A property fund using a trading strategy that enables it to avoid paying stamp duty is currently available to intermediaries through Pinder, Fry & Benjamin.
The structured investment provider is marketing and distributing the closed-ended Off-Plan fund on behalf of property specialist DCM (Jersey).
Domiciled in Jersey, the fund will give access to the residential off-plan property market. Buying off-plan is essentially purchasing property in the process of development.
The fund will agree to acquire residential properties that are not yet built by committing to pay a discounted price once the properties are complete.
On exchange of contracts, it will typically pay a deposit of 5%-10% of the discounted current market value, giving shareholders geared exposure to the portfolio's performance.
It will then look to use this debt-free gearing, as well as the discounts it achieves, to generate capital gains by selling properties in the off-plan market without ever completing.
As the fund intends to sell properties prior to completion, it should not be liable to a stamp duty charge, as this is only payable on completion.
DCM is looking to raise at least £10m for the fund, with 10 May the initial closing date for the offer-to-buy shares.
The fund is designed to capitalise not only on discounts currently available, owing to perceived weakness in the housing market, but also on those that might emerge if prices fall further in the near future.
Tom Pridmore, director of Development Capital Management, property adviser to the fund, said: 'Whether prices rise or fall over the next 12 to 18 months, fear of a fall has already knocked public confidence. The volume of property transactions is falling, one of many factors causing price growth to stall, creating investment opportunities as housebuilders are already committed to the long-term development of land banks.'
The fund will have a seven-year lifespan, subject to extension by shareholders by special resolution. In case the fund does have to complete on any property, however, approximately 50% of initial assets will be invested in a short-dated gilts portfolio run by Kreis Consulting.
As well as covering the running costs of the portfolio, this would enable it to complete on a property and let it until it can be sold for a gain. The annual management fee on the fund is 1.25% of the monthly net asset value of the gilt portfolio per year, plus deposits paid on properties, out of which the fees of Development Capital Management and Kreis Consulting will be paid.
There is also an initial fee of 5%, of which 2% is payable to advisers. Minimum investment is £50,000 and maximum is £100,000. The company is expected to begin trading in mid-May.
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