Daniel Williamson is head of Bristol discretionary at Rowan Dartington
Overview: Confidence rising in property sector
Property and absolute return on Berry’s watchlist
Berry Asset Management is looking to increase its exposure to assets such as property and absolute return strategies as a reduction in quantitative easing nears.
Is this just another bubble?
Investment Adviser’s research into the top holdings of 10 UK mid-cap funds found between them they invest in 22 property-related firms. Of these firms, 20 have posted share-price gains of more than 25 per cent in 2013 alone.
Examples held by several managers, including both Mr Watts and Mr Spencer, include Ashtead Group, a provider of heavy-duty construction equipment, which has gained 42 per cent so far this year; and kitchen-maker Howden Joinery, which is up 51 per cent. But there are increasing signs that the recovery may have run its course and it may be time for the likes of Mr Spencer and Mr Watts to cash in.
Mortgage lending rises to five-year high of £14.8bn
The Council of Mortgage Lenders’ latest monthly estimate showed that lending has reached levels not seen since October 2008, when the figure stood at £18.6bn.
Time to invest
According to Simon Kinnie, head of real estate forecasting at Scottish Widows Investment Partnership, there remains several hurdles to large-scale institutional investment in the asset class:
There is a lack of a suitable investment stock. Most residential developments are built for stock rather than built for rental. Developers can rarely be persuaded to sell a development in its entirety before completion since the returns available through individual sales are so high in London and the South East. A solution is build to let but this is capital intensive and units cannot be sold in phases during development to release capital
There is also limited liquidity. Trading of large-sized blocks of rental properties happens very infrequently. Where rental properties come on to the market these are normally from small buy to let investor portfolios that are not suitable for institutional investors
The asset class is relatively low yielding and this is exacerbated by high management charges. The current income yield from residential property is roughly 6 per cent on a gross basis (excluding Central London) and this falls to 4 per cent on a net basis after adjusting for the high costs of management charges
