MoneyTalk (August 2004)

by Arch Financial Planning Limited

PROPERTY FUNDS

Let us begin by saying what we do not mean by property funds. We are not talking about 'Buy to Let' or any other investment into UK residential property. Neither are we talking about purchasing holiday homes in Spain or retirement homes in France. We would prefer not even to mention those schemes where you can make up to £1m from property investments with absolutely no capital or experience at all! Well we are sure someone will make £1m but it will not be those paying fees for the investment training courses, as several hundred of the companies concerned are already in liquidation.

We are talking about something much more mundane but which ought to be part of most investors' portfolios - an investment in a commercial property fund. Figures from the Investment Property Databank (IPD) show that over the last decade commercial property, as an asset class, produced real returns ahead of equities, corporate bonds, gilts and cash. Furthermore, it was only just beaten to first place by equities over 20 years.

It is, of course, possible to invest directly into a commercial property either on your own or with others. For this you would typically need to invest or borrow hundreds of thousands of pounds, or even millions. This is not something on which we are regulated to advise you.

Furthermore, we would point out the dangers of having ‘all your eggs’ in a single commercial property ‘basket’. Commercial property does not behave in the same way as residential property and you would need vastly more experience to invest safely in a single commercial property than you would when buying a single residential property. For the majority of investors we believe that an investment in a commercial property fund that is set up as a collective investment scheme is the most appropriate way to proceed. Such funds are accessible to anyone with £1,000 or more to invest.

If you would like to find out more, or to print-off a copy of our new Fact Sheet, please visit our website www.arch-fp.co.uk/property_funds.htm.

Please let us know if you would like to discuss whether an investment in a property fund might be appropriate for you. If you already have an Arch adviser then please contact him or her, otherwise email direct@arch-fp.co.uk or telephone 01483 204600.

Risk Factors

The general market for commercial property may during the period of any investment in shares in the fund depreciate with the result that the value of the fund's property investment portfolio falls. The value of any individual property may fall, for example, due to the insolvency of a tenant. The monthly valuation of the fund will be predominantly based on the opinion of the valuer of the fund of the current market value of the fund's property portfolio. The cash resources immediately available to meet applications for redemptions of shares in the fund are limited and if net redemption requests on any subscription day exceed those resources investment properties may need to be sold in order to redeem such shares. As land and buildings may be difficult to sell on these occasions, there may be times when the shares cannot be immediately redeemed.

Investors need to understand the possible downside effect of a geared property fund. That is, if all or part of the portfolio should need to be sold at a time when commercial property values had fallen, the banks would first be paid the money that had been borrowed from them. This could translate into a higher capital loss than the actual fall in commercial property values would appear to warrant.

It is intended that an investment in the shares in the fund will procure regular income for the investors who should be aware that this income will fluctuate. In addition it should be noted that the tax treatment of the fund may change. Charges and expenses in connection with the fund are not made uniformly throughout its life and it is possible that an investor may not receive back the full amount of its investment especially if it is redeemed within the first few years.

Redemption of the shares in the fund is at the discretion of the fund's manager and there may be circumstances in which it is decided not to permit redemption. Your attention is drawn to the provisions for redemption in the key features document or prospectus. An investment into a property fund is intended as a long-term investment. Where past performance is mentioned please note that the past is not necessarily a guide to future performance. The value of units may go down as well as up and you may receive back less than the amount you have invested. The tax treatment of any income payments depends on individual circumstances and tax rates and laws may change in the future.

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Arch Financial Planning Limited

Head Office & Registered Office: Caswall House, 6 Wharf Street, Godalming, Surrey GU7 1NN - Tel: 01483 527278, Fax: 01483 527279

Administration Office: Arch House, Collins Court, 39 High Street, Cranleigh, Surrey GU6 8AS - Tel: 01483 204600, Fax: 01483 204611

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