UK - Pension funds are making more use of residential property to keep a check on increasing wage-led liabilities, industry experts claim.
They point out that wage inflation - a key driver of pension funds’ future liabilities - is closely matched by increasing yields from rented properties. Until last year residential funds have been overlooked in favour of more mainstream property funds.
But with the success of Schroder’s ResPUT fund – which beat its nearest competitor in 2001 CAPS/Russell Mellon property figures by over 12% – institutional investors are beginning to see huge potential.
Schroder Property Investment Management head of research and strategy Bill Hughes said: “One of the fundamental things pension funds should be thinking about is future liabilities, which are largely denominated by wage inflation. Residential property is an asset class which will in some ways match or provide performance which looks like wage inflation. Residential property is a nice fit for pension funds.”
The £45m ResPUT fund focuses on urban areas where shortages have led to strong rental demand with high yield potential. Regions where acquisitions have been made include Birmingham, Manchester, London, Sheffield, Southampton and Milton Keynes.
Baring, Houston & Saunders fund manager Elliot Caldwell said: “For the last 30 years residential property has outperformed the sector, compared to the nationwide index, which is as about as far back as our records go. With only four other residential funds in the market at the moment, residential property is still an emerging market.”
The IPD index for private sector residential property is set to be extended to cover the whole of the UK this May. In the past, only inner London has been measured by the IPD index.
Property analysts hope that this will further heighten institutional interest in residential property.
The IPD 2001 report showed that over the last eight years inner London residential property produced an average total return of 17.8%, ahead of UK commercial property (12.3%), UK gilts (11%) and even UK equities (13.7%).
By Shifa Rahman
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Existing master trusts will be forced to pay £41,000 when applying for authorisation under the upcoming regime, the government has confirmed.
UPDATE 2 - DWP publishes DB white paper: Stronger powers for TPR, DB chair statements to be introduced
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