Don't jump aboard new property funds
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Jody Clarke Nov 20, 2009
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Housing market: back from the dead?
Residential property funds are back. On the strength of a 7% rebound in house prices since April (according to the Halifax), a host of new funds will be launched in the coming months.
The alternative, directly investing in property, may be tough – for example, only four current buy-to-let mortgage deals are available for those with just a 20% deposit, says Moneyfacts.co.uk. Before the crash, 10-15% deposit deals were plentiful. But not all funds are easy to access either. Take the Candy & Candy Growth fund, launched by the Candy brothers this week, which aims to buy, refurbish and rent high-end London properties. It requires a minimum investment of £25,000. By contrast, the Prime London Capital Fund – which focuses on properties subject to short leases – has a minimum of just £1,000. But even if you can get in at that level, we're still not tempted.
While so far this year the property market may have staged something of a comeback from the dead, it won't last. Earlier this month Savills, the upmarket estate agent, said prices will drop 6.6% in 2010. Even the bullish website FindaProperty.com has warned that there was a "growing risk of a double-dip housing recession". That's hardly surprising when lending remains tight. The Bank of England noted last week that the outlook for the housing market "will depend, in part, on the supply of mortgage credit". Despite rising to their highest level for 18 months in September, British mortgage approvals are still only half their pre-credit crisis level in 2007.
Meanwhile, some of the newest funds are happy to charge some eye-popping fees. The London Central Residential Recovery fund, for example – which aims to double an investor's money in eight years – levies a 2% fee on all acquisitions, a project management fee on top, and a 15% fee on rental income. Worse, "the only truly distressed area of the market is cruddy buy-to-let properties where people overpaid in the first place", says Graham Gould, CEO of Coba Asset Management in the FT. He concludes that "just because they're worth 40% less now, doesn't mean they're cheap".
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