Fund aims to reduce risks of buy-to-let

Published on Saturday 6 June 2009 14:23

A FUND is being launched that will allow investors to put their money into the housing market as it emerges from the doldrums, without the risk and effort of buying their own buy-to-let property.

Cornelian Asset Managers, an investment firm based in Edinburgh, has joined up with property company Grant Management to create a residential property fund which it believes is the only one of its kind in the UK.

John Jackson, chief operating officer at Cornelian, says it differs from other funds as it will buy only traditional properties with an average price of 175,000, including Georgian, Victorian and post-Second World War flats and houses "in good locations at attractive yields". It will focus on central areas across the UK, except London and the south of England. No more than 25 per cent of the fund will be invested in any one town or city to ensure it is diversified. The student letting market will be a target because of the steady demand it provides. The fund will avoid saturated parts of the buy-to-let market, notably new-build, one and two-bedroom apartments in redeveloped areas, such as Glasgow Harbour and Leith Waterfront in Edinburgh.

The Cornelian Residential Property Fund is being set up as a limited partnership to restrict access to sophisticated and experienced investors.

It plans to raise a minimum of 10 million to build up a portfolio of properties. The fund will hold properties for five to seven years and will then start to sell them. Over that time the properties should have increased in value because of renovation work carried out and the predicted pick-up in the housing market.

Jackson says: "We believe there are opportunities in the residential property sector for experienced investors to take advantage of the underlying value in carefully selected, traditional residential property."

He adds that the fund is less risky than becoming a buy-to-let landlord because the investment is phased over a number of months. This means an individual does not have to put all their money into one property at what may turn out to be a bad time in the market. Clients can include the fund in a self-invested personal pension in order to gain tax relief.

Cornelian chose Grant Management as partners to source and manage properties within the fund because of their experience across the UK private rental sector. Grant currently has 500m of property under management.

Peter Grant, chief executive of Grant Management, says: "We're seeing increased activity among surveyors and estate agents, and mortgage lending is also starting to climb. The student rental market is booming, making buy-to-let in university towns almost a recession-proof investment opportunity."

The Property Activity Index, published this month by Agency Express, showed signs of recovery in the housing market, particularly in Scotland. Between April and May there was a 23 per cent increase in the number of "For Sale" boards going to "Sold". Stephen Watson, of Agency Express, says more properties are being sold now than at any time in the last year.