Property Investments Create SIPP Investor Frenzy!

Like a mad frenzy of Saturday shoppers at the sales, investors throughout Norwich and Norfolk have been grabbing at freehold stock. Property investors are leading the charge with a mad dash to beat the deadline for self-invested pension plans on the so-called ‘A Day’ in April 2006.

Until April 2006, investors will be able to gear up their investments by 75% loan to value.  After that, the Government's pension shake-up and bid to simplify investment guidelines, it will be a more modest 50%.  They will also be eligible for tax relief, boosting investors' spending power by 40%.

Residential property will be included as a qualifying investment in the SIPPS market after 'A Day', and will undoubtedly take the lion's share of investors' cash.  Commercial property, however, is now very popular and Standard Life currently estimates that around 15% of SIPP investment funds will be directed into commercial property.  It expects this figure to rise by around 20% per annum, as investors become more interested and comfortable with commercial property investments.  Popular sectors include high street shops, and small industrial units.  Guy Gowing, Managing Partner of Arnolds Chartered Surveyors, says private investors are piling into the market in a bid to secure increased gearing.  Consequently, he believes that good small industrial investments can achieve sale prices reflecting 7.5% - 8% initial yields, but some small shop investments for sub 5% yields.  He added that the market is very strong and it is hard to find anything 'off market'.

The benefit of investments in commercial property are clear in that parties can purchase property investments, the rental income will service their borrowings, and there is the potential of capital growth in the long term.  This does, however, need to be offset against the potential, and occasionally lengthy, rental voids.

Recent central London auction results have been evidence of this investor frenzy.  For instance, a retail investment in Holt town centre, let to Unwins on a new 15 year lease has recently been sold on a sub 5% yield.  This is an exceptional yield for a market town retail investment and reflects the increased bidding from those parties capable of securing the appropriate tax rebates for their SIPPS, and is evidence of the amount of funds chasing well-let investment properties at the current time.  Whilst the above property sold for around £800,000, the evidence of these purchases is very strong at the smaller level.  Arnolds have recently been involved with a number of purchases or sales of small industrial units with values up to around £350,000 in both Norwich and the market towns, where investors are purchasing these, for letting.  This increased activity will almost certainly continue for the remainder of the calendar year up until 'A Day', following which time the attention may well switch to residential properties.

After that time, investors will need to carefully consider the balance of their self-invested pension fund investments whether this be in cash as opposed to bonds or equities, and if they venture into the property investments, whether they are either to the commercial or residential property sectors.

For further information, please contact Guy Gowing on 01603 620551, email guy.gowing@arnolds.uk.com

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