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Indirect means buying into a property investment without actually buying the property itself directly. For example, indirect investment might involve purchasing units in a company or scheme which does own the property investment. These can take several forms:
1. REITS (Real Estate Investment Trusts). These are primarily public property companies, listed on the London Stock Exchange. You buy shares in these companies which can be traded through your stockbroker. Examples of large public property companies are Land Securities, Great Portland Estates and Derwent London plc. Land Securities is the largest UK property company and invests in all types and classes of property throughout the country. Derwent however is a specialist property company and only owns property in Central London, and mostly offices.
2. Unit Trusts. These are the other main means of investing indirectly in property. They can take very many forms and are intended to suit a wide range of different type of investor. Examples of some:
• Authorised and Unauthorised Investment Trusts. Authorised ones can be sold to the general public and unauthorised are private trusts which cannot be sold to the general public.
Within these two types are “open ended” and “closed ended” funds. Open ended ones are ones which do not have a specific life span; i.e. in theory they can go on forever and “units” can be traded on the open market. One example is the Standard Life Property Income Unit Trust. Closed ended unit trusts have a specific life span, for example, ten years, after which the fund is wound up and the unit holders are paid out after all the property has been sold, such as Schroders WELput unit trust. This invests in office property in the West End of London and the life of the trust will come to an end in 2023 when all the property is sold and the investors paid out. Unlike the open ended unit trusts, these are “non-tradable” over the life of the trust (other than in special circumstances) which means that an investor cannot sell its units until the end of the trust. Finally, many of these Unit Trusts are “Exempt” funds which mean they are tax exempt – they don’t pay tax and pension funds are a good example.
3. Derivatives or SWAPS. These are quite a complicated concept to understand but in essence they bet against the performance of a property index. They are only for very sophisticated investors such as large institutions and pension funds. It is a form of obtaining property investment returns without investing in direct property by effectively betting against the IPD index. In the case of derivatives you are not actually investing in property; you are taking a view on the performance of the market.
Senior agent Tom Lax from Morgan Pryce believes there are many reasons to invest in all of these types of indirect investment; “They give you diversity. They enable you to invest in a whole range of property which you would not have enough money to do yourself – so you might buy Land Security shares to gain exposure to the whole UK market. You might want to invest in Central London but because property is so expensive and the lot sizes so large you might instead invest in Derwent shares. Alternatively you might decide to invest in the WELput unit trust to gain exposure to offices in Central London investments.”
Most indirect investments – other than closed ended trusts – allow you to buy and sell the units/shares instantly so that you can dip in and out of the market very quickly. Direct property investment takes far longer to buy and sell. In addition the buying and selling costs involved in indirect are often much less than direct property; these funds enable you to benefit from property performance without all the hassle of actually owning it yourself. Some of them also enable investment without paying tax – very attractive to “off-shore” investors.
Morgan Pryce is a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.