After a year of uncertainty in the property markets, investors need to be clear what they are buying and why, according to property fund of funds specialist Seven Dials.
Property funds have been among the worst hit by the credit crunch and its negative effect on sentiment, with property securities suffering more than bricks and mortar as they are more directly exposed to equity market sentiment, although even some direct funds have devalued their assets in recent weeks.
“There is an issue about how commercial property is priced,” said Seven Dials director Simon Critchlow, whose European property fund is priced on a net asset value basis. “Property shares and Reits have had a torrid time in 2007. In the short term there can be a big divergence between property shares and directly held property. Through this year Reits have gone from a 10% premium to a 25% discount.”
The Seven Dials fund, launched in March this year, has performed better than many more established ones, partly because of its focus on Europe, though Critchlow stressed that investing in property is a long-term game and should not be judged over such short periods.
“We give access to institutional funds for non-institutional audiences,” he said of the unauthorised Guernsey Oeic, which has a minimum investment of €40,000 but gives access to underlying funds with minimum investments of €10m.
Funds investing in the UK have had a worse time and in its release of investment fund statistics for October, the Investment Management Association revealed there had been an outflow of 1% of the assets in the sector, although it said this was unlikely to cause liquidity problems.
Meanwhile, closed-ended funds fared even worse, with research from Wins Investment Trusts drawing parallels between property funds in 2007 and TMT in 2000. “There is real underlying value in property, unlike many of the technology stocks, and we felt that this would lead to a more gradual decline,” said Wins’ researchers. “As a result, we have been surprised by the pace of the collapse in ratings of the UK property vehicles, which are now trading on discounts of 30-40%.”
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