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UK advisers confused over timing of commercial property recovery, says Reita

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There is significant confusion amongst advisers on the likely timing of the commercial property market recovery, according to a new report from Reita, the UK education and awareness campai

There is significant confusion amongst advisers on the likely timing of the commercial property market recovery, according to a new report from Reita, the UK education and awareness campaign for real estate investment trusts and quoted property investment.

The research commissioned for Reita, involving 241 UK-based financial advisers and conducted by NMG Research last month, found that 40 per cent of IFAs expect the UK commercial property market to begin recovering this year, but 42 per cent do not expect the recovery to start until 2009 or later. Ten per cent of advisers say the recovery is already underway, but another 10 per cent don’t expect it until 2010.

‘The views of advisers on the timing of recovery for the commercial property market are very interesting, particularly in their diversity not just from each other but also from the views of other industry commentators,’ says Reita head of external affairs Dave Butler.

‘Less than a couple of weeks ago, 58 per cent of Reita’s own expert panel agreed that investment conditions in the UK commercial property market would not start to recover until 2009 and only 27 per cent saw recovery beginning this year.

‘Clearly advisers are far more positive than the experts about the outlook for property this year and perhaps overlooking the potential double-dip effect that the experts fear. While falls to date have been in investment values, we are now seeing concerns about weakening on the tenant side which would impact rental income streams – particularly those portfolios which are not focused on prime-grade property.’

Butler notes that the proportion of advisers who would consider putting Reits into their client portfolios has dropped sharply in recent months, which he believes reflects overall concern about the commercial property market and the sharp falls in value of Reits.

‘However, advisers should remember that the pricing of stock market listed vehicles, such as Reits or Guernsey investment companies, is forward-looking, and therefore already includes anticipated falls in the value of direct property,’ he says.

‘Even if advisers do not provide financial advice on Reits and offshore companies, an understanding of the information they can provide is important in today’s turbulent market.’

The survey found that only 6 per cent of advisers claimed to be well or very well informed about property authorised investment funds, while a large majority described themselves as not at all (17 per cent) or not very well informed (50 per cent).

Launched on April 6 this year, property authorised investment funds – like Reits – are property investment vehicles for which tax is levied not on property income in the vehicle itself, but on the end investor. The new vehicle offers for the first time tax-efficient investment in property for exempt investors via an authorised investment fund.

‘From an adviser perspective, Paifs appear to offer all the advantages of Reits and in a familiar open-ended structure so that, unlike direct UK Reits, most advisers are able to advise clients on Paifs,’ Butler says.

‘The fact that so few advisers are informed about Paifs is perhaps not a surprise given how new they are, but it is vital that the industry works together to educate advisers further about the benefits they offer.

‘Paifs will be one of our key educational themes for 2008-09 so that advisers are ready for them as the market picks up again and we see both the conversion of existing funds to Paifs and the launch of new Paifs perhaps intended as vehicles for holding shares in Reits.’

The survey found that only 21 per cent of advisers expected to incorporate Reits or Paifs into their investment clients’ portfolios this year, compared to 33 per cent who had expected to in February this year and 48 per cent last October. Now 40 per cent of advisers say they have no plans to incorporate Reits or Paifs into client portfolios, compared to 35 per cent in February and 22 per cent last October.

The reita.org portal provides knowledge, education and tools for professional financial advisers, other financial specialists and private investors, and represents the UK’s first dedicated educational resource for information on Reits and quoted property investment.

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