Simon Morris, an independent investment consultant with in-depth knowledge of the property market, offers his expert advice in the Guide to Property Investment in 2015. The guide aims to help private and commercial investors make an informed choice about where they put their money in 2015.

1. 2015
A Guide to
Property Investment in 2015

2. Looking back over 2014, the economy has had to
contend with Middle Eastern conflicts, the possible
break-up of the UK with Scottish independence and
constant speculation about interest rate rises. Despite
all this, the property market had another record year.
2015 looks set to be another busy
12 months, with general elections
in the UK and 11 other countries,
the oil price dropping and yet
more speculation about a possible
interest rate rise. So, what’s in
store for property in 2015?
While todays modern economists
have complex tools to predict
markets, as the recent past has
shown, nobody has a crystal ball
when it comes to predicting the
monetary future. Despite this,
the Centre for Economic and
Business Research (CEBR) has
made its annual prediction for
the year ahead.
With interest levels remaining low,
investors are still on the search
for investment opportunities that
bring about the best return, with
property prices remaining high,
particularly in London, looking
at property-based funds and
investments is predicted to
remain popular.
Overview

3. The CEBR believes that the year will start badly with
negative trends in China, Japan, the Middle East, Russia
and especially Europe. Failing prices in the UK, with oil
being key, should mean that the economy in the UK will
really only kick into gear from June onwards.
Not all economists agree, but the CEBR believes that we’ll dodge the
interest rate rise again in 2015, I believe interest rates will stay the same
until after the general election in May, but further than that is anyone’s
guess. Many economists are predicting a rise to 0.75 per cent in or
around August 2015. Especially if the economy is doing well.
Starting badly

4. This time last year inflation was the big concern, there
were very real worries that it was set to be an issue
in 2014. That’s now passed, and as we sail into 2015,
inflation may even fall further according to the CEBR.
Unemployment also fell during 2014, and this trend is expected
to continue in 2015. The pound is expected to strengthen after
the election, alongside growth in the UK and the Bank of England
finally flipping the switch on interest rates. The election is still key
to all of this and we’ll look at that now.
The election
The UK isn’t the only country going to the polls,
Canada, Mexico, Argentina, Nigeria, Israel, Poland,
Portugal, Spain, Sweden, Sir Lanka, Myanmar, Thailand
and Turkey are also voting, and this comes on the back
of the recent election in Greece which may still have
longer term repercussions for the Euro.
The CEBR quite honestly predicts that the UK general election could see
significant changes in Parliament with this having the potential to rock the
recovery. At the moment the country and city will be waiting to see any
impact this has on public spending and investment this year.
Falling inflation and unemployment

5. It’s been widely reported that the housing market did
slow down towards the end of 2014, and more house
building should push prices down further. Outside
London house prices should stay stable but the London
market will continue to grow, but not as fast as before.
Tighter affordability checks from
lenders should also slow the
market, as well as the inevitability
of house buyer interest waning
when the gap between earnings
and property prices makes
ownership unfeasible for some.
An influx of foreign investors
helped property prices throughout
2014, this is especially true for
London. I expect the capital to
show growth again this year,
but remain flat until after the
election. Outside of London,
growth will be there, but more
modest than last year.
Property website Rightmove
believes property is set to soar
over the next five years, it is
predicting gains of over 30% and
believes that markets outside of
the capital will lead the way. These
are headline grabbing figures,
but I’d side with more cautious
predictions for the time being.
What to expect from the
property market in 2015

6. Property remains one of the best investment vehicle of
the last few years, this is true whether you own bricks and
mortar stock or have money in a property fund or bond.
There is still value in a number of property investments, and I’d expect
steady growth in the second half of 2015. Commercial property funds
were consistently one of the top-selling fund types among investors.
These come in two guises: portfolios that invest in the shares of property
firms, which essentially are an equity play on the market; and those
which invest directly in bricks and mortar, these especially are popular
at the moment.
Apart from diversification away from stocks and shares, these
investments offer the opportunity to spread their cash over a broad
variety of buildings, including offices, retail parks and even student
accommodation. The rents paid by tenants can provide a stable and
rising income stream and a very healthy yield.
If you’re interested in investing, and haven’t taken advantage
of your yearly ISA (NISA) tax- efficient savings allowance
this next section is for you.
Commercial Property

7. NISAs are savings and investment accounts with
a tax-efficient savings benefit. You can use them to
invest in stocks, shares, bonds and funds. On 1 July
2014, Cash ISAs and stocks and shares ISAs were
merged into a new single ISA (NISA) with a much
higher limit of £15,000 per year.
The advantages of investing
through a NISA is that you pay
no Income Tax on any interest or
dividends you receive from an ISA
and any profits from investments
are free of Capital Gains Tax.
Investing in property through the
tax-efficient wrapper of an ISA
is popular with many investors,
but like all financial products you
should seek advice if you don’t
understand the product fully.
Listed property bonds and funds
are perfect choices for the ISA
investment wrapper, and this is
proving a popular way to take
advantage of gains that are being
seen in the property market.
Contact your ISA provider for
details of how to purchase these
funds and bonds within the stocks
and shares ISA wrapper and the
costs involved. The process of
purchasing funds and bonds for
an ISA investment is relatively
straight forward and usually low-
cost. Investors need to be aware of
the risks involved and should seek
financial advice where required.
If you’re looking to get started
on property investment in 2015
either through an ISA or by adding
directly to your portfolio, this next
section will offer the informed
investor some vital information
about the types of property fund.
New Individual Savings Accounts (NISAs)

8. Property investment
bond
Fixed income property bonds are
now available and offer healthy re-
turns in the region of 6-8%. These
are proving an increasingly popular
option for investors looking for low
risk and high yield.
How do property investment
bonds work?
Bonds are a fixed income invest-
ment product that are issued by
companies as a way of raising
finance. The bond issuer pays the
investor for the privilege of using
their money in the form of interest
payments known as the coupon.
The interest payments are made
at a determined rate and on a
determined schedule. The bond
will have a maturity date in which
loan is repaid to the investor. So,
with bonds you’ll know exactly how
much you’ll get back if you hold the
bond until maturity.
Bonds are tradeable on the mar-
ket and a bond’s price can change
daily like any other equity. You can
buy or sell bonds at any time, you
don’t need permission from the
bond issuer to sell the bond.
Bonds can be affected by changes
in interest rates, but this is off-set
by the advantages of knowing your
long-term return.
Offering a good, safe investment
and typically providing a secure
income and healthy capital return
property bonds are really starting
to be the investment vehicle of
choice in the current market.
With the property market predict-
ed to show healthy returns in 2015
and beyond a fixed income proper-
ty bond is way to take advantage of
property price gains without having
to physically own and maintain any
property yourself.
Advantages of property bonds:
• Fixed income
• Healthy returns in the
region of 6-8%
• Return on the original
investment on maturity
• Tradeable
• An easy way of taking advan
tage of predicted property
market rises
• A conservative investment
that has the potential to
provide large gains
• Less volatile than equities
Simon Morris, Property Advisor to
Investment Funds has lately seen
a rise in popularity of property
investment bonds and he believes
that this is an excellent way to take
advantage of the buoyant
property market.
Types of Property Fund

9. Bricks and mortar funds
A number of physical
properties are purchased
by the fund, spreading
the risk across the properties.
Returns are made from an
increase in value of the properties,
but also the rental income.
Benefits of direct commercial
property investment funds
Longer lease lengths (e.g. five
years or more), result in a reduced
risk of empty tenancies, along
with upward-only rent reviews.
This means that rental income
increases at least by the rate of
inflation each year.
The Fund Manager is responsible
for sourcing tenants, investing in
property in prime locations, and
negotiating lease lengths.
Risks
•
If the initial capital is tied in,
buying or selling property
can take long periods of time,
making it difficult to sell your
holding in the fund quickly. If
you’re looking for quick returns
– this type of fund may not be
ideal for you.
•
If the property boom bursts,
financial markets property
values may decrease. Watch
out for clauses in the contracts
that allow Fund Managers
to lock down the fund with
“exceptional circumstances.”
•
If a number of Investors are
looking to reclaim their cash,
under FCA rules, property
funds can suspend trading
for 28 days, whilst they try to
raise enough cash by selling
properties, to meet the
repayments of Investors. This
period may recur until the
fund has enough capital to
meet redemptions; previously
in unstable times, this period
lasted as long as a year.

10. Indirect commercial
property funds
•
This is property investment
once removed. The funds invest
into companies, who have large
property portfolios. Associated
shares are listed on the Stock
Exchange, and traded on a daily
basis, no different to any share
trading. Due to the daily trading,
unlike with direct commercial
property funds, there are no
liquidity issues, so investors can
move in and out of the fund
with ease, and access their cash.
•
Returns are reaped as
they would be in any other
investment in shares; through
share price appreciation, and
dividend income, rather than
directly through property price
increases and rental income.
But while you get the benefit
of the liquidity of an equity-
like product, you also get the
volatility of investing on the
stock market.
Real estate
investment trusts
The great majority (over 80%)
of these property companies
are known as Real Estate
Investment Trusts (REITs),
and have greater tax
benefits, than other listed
property companies.
REIT companies don’t pay
corporation tax on their assets,
on the condition that 90% of
profits are paid to shareholders
as dividends, which in turn, could
mean higher pay outs. REIT
investors pay either 20%, or
40% tax, because they’re classed
as property-letting income.

11. Property investment trusts
Alternatively, you could invest in property investment trusts, which will
pool your money to buy property and property company shares. The
difference between these and REITs, is that they’re considered to be like
any other company, so tax on dividends is only 10% for basic-rate payers,
and 32.5% for higher-rate payers.
Investment trusts can do things that unit trusts and OEICs can’t. For
example, many property investment trusts use gearing - a process
whereby the companies borrow money - to boost the amount they
can put into property, beyond what you have invested. While this can
enhance gains in a rising market, it can magnify losses if returns fall.
Regulation of Funds
It’s recommended that any investment you sign up to is regulated
and authorised by the FCA (Financial Conduct Authority).
If the Funds Management Company goes bankrupt, the
investment belongs to you, and you are protected as the
investment remains in place.
A trustee or depositary is appointed to oversee and safeguard the fund’s
assets (your investment). Their objective is to oversee the management
of the fund, and ensure that the fund is run with the best interests of
its investors in mind. Regulated funds have rules in terms of what a
manager can and can’t do – so be aware of the following:
•
There are limits in the type of investments that can be made.
•
There are rules in terms of the information that the fund manager
gives to you.
•
Restrictions on the way funds can be promoted and sold.
•
Regulations governing the charges and costs you pay.

12. Research Your Fund
Before you invest in a fund – ensure that you are aware of the following:
• The type of property that the Fund is investing in, i.e.
Office, Commercial.
•
If the fund concentrates on Commercial or Retail Properties –
check out the existing tenancy arrangements – are there existing
tenants? How long is the lease agreement?
•
The locations of the property within the portfolio. London and
Manchester are two of the UK’s favoured locations at the moment.
But be aware of the strategy of the properties purchased, along with
research prices, trends and the economy, in the related areas.
•
The level of risk you’re signing up to. There are funds available
now that guarantee the initial capital invested. Higher risk usually is
balanced with higher yield, but be aware of the risk level of the fund.
•
Check the management charges. Are they paid up front? How do
they compare with other Funds?
•
Be aware of how long your money is tied up for. Can you release
your investment quickly, or is it tied into a period of time?

13. If you are serious about investment into property, Simon Morris offers
the following key pieces of advice:-
• Ensure that the Fund is regulated or managed
by a regulated manager.
• Ask questions in terms of;
- Management Fees
- Types of Property that the portfolio includes or may include
- Locations of the property
- Existing Tenancy Arrangements – length
•
Some funds guarantee the initial capital invested –
check the details for this.
•
Keep an active interest in the health, management
and performance of the fund.
• Watch out for changes in the Management Company
• Keep an active eye out on property and financial news
Summary

14. Simon Morris is an Independent Property Consultant
with over 15 years’ experience in property
investment. Simon actively works with a number of
funds and high net worth individuals, advising on
property purchases, to ensure investments made into
property, are measured in terms of risk, and bring
solid return on the initial investment.
About the author

15. 2015
A Guide to
Property Investment in 2015