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Rises Seen in Commercial Property Purchases in Pension Funds

Rises Seen in Commercial Property Purchases in Pension Funds

In 2016, there were reports of rises in commercial property purchases ranging from retail units to large industrial developments valued at more than £1.5 million, interesting though these were as purchases for SIPPs funds. Some of the reasoning behind this is alleged to stem from volatility in the financial markets encouraging investors to move their money into property, as a more stable option.

This rise does beg the question of whether this is a wise investment and what it could mean for the financial future of these buyers. Here, we take a look at this in closer detail.

Property can be a Smart Investment

Many investors view property as a smart investment. Mortgage interest rates are at record lows and property prices are on the rise. Prices in London fell by 8.7% last year, but in other parts of the UK, price growth is strong.

However, the Government has introduced recent tax changes to dampen down enthusiasm for property investment. Crucially though, Stamp Duty rises don’t apply to commercial property, so many smart investors are looking at the commercial sector as a tax efficient way of diversifying their portfolios.

Interest in commercial property investment has been rising since 2012 and nearly £4 billion was invested in commercial property in 2014, with many investors realising gains of up to 19%. This does suggest that commercial property investment can perform far better than other types of investment.

SIPP Pension Funds

It would seem then that investing in commercial property within a SIPP pension fund can then be more advantageous than buying a property as a standalone investment. Whilst residential property is unsuitable as a pension fund investment, commercial property can work extremely well.

Using a SIPP to Fund Commercial Property Purchases

Commercial property held within a pension fund is managed by the Trustees of the pension. Investors can purchase a property from which their business is run, or they can invest in property they have no connection to.

Commercial property held within a pension fund generates an income, which can be reinvested or used to pay the interest and capital on a mortgage connected to the property.

A Positive Outlook

If you find the prospect appealing, but have yet to set up a SIPP, you should seek guidance from a financial expert to advise you on which options could work best for you. There are plenty of options, but it’s worth speaking to firms such as Bestinvest who have specialist experience in these area.

The bottom line is that with interest rates so low right now, income generated from renting out a commercial property unit can create a good return on investment. What’s more, with interest rates likely to remain low for the next year at least, now is a great time to act.

Image courtesy of iStock

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