Property ISA, degree of risk

Kerry_o'keefe

Can anyone offer any advice on Property ISA's. I am thinkikg of putting £5000 into a property ISA to diverse my portfolio(wife and I currently have Perpetual High Income,Jupiter Income and Perpetual European Growth- don't laugh it diod reasonably well last year). Compared to the above, what is the level of risk with property ISA's ? Where can I go for guidance on which to buy ? Currently not bothered about income - looking more for growth. Thanks in anticipation. Kerry

dunstonh

Property ISAs range from low risk to very high risk. Bricks and mortar property funds tend to be low risk whereas those investing in property companies are hig risk.

There are some things to consider when buying property funds
1 - share content
2 - type of property holdings (manufacturing/office/retail/warehouse/govt)
3 - location of holdings (i.e not all in central london!)
4 - gearing
5 - size of the cash holding
6 - liquidity issues on withdrawals
7 - limited dealing dates exist on some. A few are once a month

that list is in no particular order.

EdInvestor

Kerry_o'keefe wrote:

Currently not bothered about income - looking more for growth.

To my mind this distinction between income and growth funds/shares is somewhat artificial. If you want to turn an income share ( ie one which pays a dividend) into a growth share, just reinvest the dividend.

Most people invest in most property funds for the yield, which has historically been in the 6-7% range, with another 2-3% on top for capital growth.The yield is pretty stable due to long leases with upwards only clauses. In the last few years huge demand by investors for property has pushed up capital growth as well, and returns have been in the 15-18% range in some cases. This growth has in turn pushed the yield down in some cases to more like 5%.

IMHO commercial property funds do represent a very decent low to medium risk alternative to equities these days, where people are still only looking for a 7% average growth in the latter, due to the low interest rate/low inflation environment.

The risk level on most property funds is a bit lower than equity income funds, but bear in mind DH's points. There should be a large number of new funds coming on stream soon so it might be sensible to wait a while before investing so as to get better choice.

As always the top funds are likely to be run by the big insurers.