Real Estate Property Funds

Hearthstone Estimates Half of Cash ISA Investors Eye Residential Property Investment Opportunities

A data analysis by Hearthstone Investments is indicating that up to half of the savers running their own pension funds would consider adding Property Authorised Investment Funds (PAIFs) to their investment portfolio now that this investment opportunity is available to holders of Individual Savings Accounts (ISAs), the UK-based specialist residential property fund manager reported.

The data analysis also showed that if investors had been able to regularly put their full cash ISA allowance (£47,800) into a residential property fund since ISAs launch in April 1999, they would have seen the value of their investments increase by 47.26 percent. This is substantially more than the increase that would have been delivered by cash ISAs (25.59 percent) and equity ISAs (22.35 percent) over the same period.

Christopher Down, Hearthstone’s founder and chief executive, said that while this fiscal year is the first that prospective retirees can put residential property funds into their ISA portfolios, there is clearly a substantial amount of interest from investors who may have previously selected cash or equities. He commented further: “Indeed, residential property is an asset class which has performed substantially better than average cash or equity returns since ISAs were first launched.”

**New Property Investment Opportunities for Cash ISA Investors**
Ever since the global financial crisis struck, making many pension products nearly worthless, real estate has been an increasingly popular investment option because it is less volatile than stocks and offers strong and secure returns. Self Invested Personal Pensions (SIPPs) have become very popular along with ISAs, both of which offer attractive financial incentives to UK investors and allow them to manage their own investments.

SIPPs have been arguably more popular, but with one drawback: SIPP investors are limited to investing only in commercial property. ISAs also carried this limitation until now, with most property investments having to be made via commercial property funds. These either invest directly in bricks and mortar, though some will instead hold shares or property companies.

So far, two new ISA residential products have been created in the UK – TM Hearthstone UK Residential Property Fund, a PAIF launched in July 2012 that is investing in homes of various sizes in the UK, and Castle Trust’s HouSA, launched in October 2012. The latter, which is not a PAIF, is tracking the Halifax house price index and can pay a fixed quarterly income, regardless of performance.
According to Darius McDermott, the managing director of investment broker Chelsea Financial Services, these products provide more diversification than buy-to-let by not being dependent on any one location.
!m[ISAs Get Access to Residential Property Investment Through New Vehicles ](/uploads/story/1794/thumbs/pic1_inline.png)
He said, as quoted by The Telegraph: “The HouSA is illiquid, so if you go into a 10-year tranche and your circumstances change you can’t guarantee to get your money out. It’s not for everyone and we are broadly positive on it. With the Hearthstone fund, we like the fact that there is no gearing, as it buys properties outright, but the charges aren’t cheap.”
As a Property Authorised Investment Fund (PAIF) the Hearthstone Fund is eligible for tax-efficient wrappers such as ISAs and SIPPs and has share classes that are suitable to both retail and institutional investors. Hearthstone Investments, the manager of the property fund, also said that Individual investors can both switch their existing portfolio to the fund and also make use of their full yearly ISA allowance of £11,280 or Junior ISA allowance of £3,600, which contrasts positively with cash ISAs where a lower limit of £5,640 applies.

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