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Financial Advisors prefer commercial property

Dave Butler, director of corporate affairs at Grainger plc said:

“The drop in confidence in the residential housing market, whilst quite large, is perhaps to be expected given the uncertainty surrounding the economy. It also prudently reflects doubts as to whether recent rises in house prices can
be sustained”.

“Threats to raise CGT rates may also have raised concerns amongst some residential investors, particularly Buy to Let Landlords, but these may also create some interesting buying opportunities for those in the residential
market for the long term”.

In contrast, two thirds (66%) of IFAs believe commercial property prices will rise by up to 14% in the next twelve months, compared with 59% in October 2009 and only 24% in July 2009. Only 8% believe prices will fall during the same period (12% in October 2009 and 40% in July 2009).

Increasing expectations for property prices are feeding through to IFAs’ confidence in advising clients on how to choose between different property sub-sectors. Back in October 2009, 33% of interviewees were confident in advising, and this has now risen to 41%. At the same time, the number who aren’t confident has decreased from 59% in October 2009 to 44% now.

Patrick Sumner, chair of Reita, said:

“The IPD capital value index is showing clear signs of peaking after a strong run since mid-2009. Behind the average,
however, there is a clear gap between prime, well let assets and secondary.”

However, IFAs are still largely unconcerned that the rise in commercial property values will increase the risk of excessive demand for property funds. 72% are unconcerned at the moment, compared with 79% in January 2010, while 18% are concerned now (19% in January 2010).

Patrick Sumner, warned, however: “The price rises reflect a recovery in financial markets more than in the wider economy and occupational demand, and demand for property stocks is unlikely to improve – at least among general equities funds – until rental growth turns positive. Outside London, that is still some way off.”

The survey of 270 IFAs was carried out in April 2010 by NMG Research, part of a quarterly research exercise by Reita (www.reita.org).

Peter Cosmetatos, of Reita said:

“The survey was conducted in the run-up to the general election – a period of some uncertainty – so the IFAs were more up-beat than might have been expected. However, with a hung parliament being followed by a coalition government, and coinciding with the debt crisis in the Eurozone, the period of uncertainty has continued beyond the election. It is too early to predict how the markets will respond, and whether the new administration will introduce revenue raising policies that could impact adversely on the property sector.

“It will be interesting to see, in the next set of IFA survey results in July, whether all this upheaval will have any impact on IFA expectations and sentiment. We do not expect the caution, which has significantly diminished in the last nine months, will disappear altogether, as the recovery of property prices is patchy, across different sub-sectors and regionally. However, with continuing uncertainty in stock markets, and interest rates continuing at record low levels, we still believe IFAs and their clients should consider REITs and other property funds as a medium to long term investment.”

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