Global Property

[GeoffF100]

I wondered about global property. I looked at Monevator:

http://monevator.com/low-cost-index-trackers/

This article says that the cheapest global property tracker is the L&G Global Real Estate Dividend Index I (GB00BYW7CN38) with an OCF of 0.2%:

http://www.lgim.com/uk/ad/funds/global- ... ass-i.html

The historic yield of this fund is 3.10%. Subtracting the OCF of 0.2% reduces this to 2.90%, and I expect that there are hidden costs too. The cheapest UK property fund has an eye watering OCF of 0.4%.

I currently have British Land and Hammerson in my ISA, with historic yields of 4.3% and 4.5%, according to DigitalLook. That is an average of 4.4%, about 50% more than for the global property fund.

Does overseas property really have that much more growth potential than property on this small island? The dual threats of Jeremy Corbyn and a hard Brexit make me want to move more money overseas, but the yield does not look at all promising.

[Alaric]

Does overseas property really have that much more growth potential than property on this small island?

It's not investing directly in property though. Rather it's investing in REITs and other property owning Companies. As such its dividend return will reflect the dividend policies of these. Outside of the UK and US, dividends are frequently much lower.

[greygymsock]

3.1% is what the L&G fund has actually paid out, but they are charging the management fee against capital, which is perhaps your point when you deduct it from the yield.

by holding individual UK REITs in an ISA, you do not lose 20% withholding tax on PIDs. a fund, investing in the same REITs, would lose that 20% (on PIDs, but not on ordinary dividends). i think that accounts for a lot of the difference in yield. (many other countries also will be withholding tax on distributions from REITs / property companies.) with much of the rest being management charges.

looking at ishares property ETFs for different regions of the world (IUKP, IUSP, IPRP, IASP), there is little difference in yields between them. however, as Alaric says, not all of the shares held are in REITs (which are obliged to distribute most of their property income). the UK and USA have REITs; i'm not sure where else does. might there be more value in asian or continental european property companies, if they have a similar yield, and yet may not be paying out all the income they earn? i don't know - just a thought.

corbyn would of course boost property prices by increasing infrastructure investment. but OTOH might eventually introduce a land value tax, taking back much of those gains.

a hard brexit, where we become an outright tax haven, could boost property prices, as international money rushes into UK property. but would be bad for the real economy, which could hurt property prices in the longer term.

my point is that politics can certainly affect investment returns, but how it will affect them is pretty much speculation.

if we don't know what will happen, diversifying between the UK and the rest of the world is perfectly sensible. however, in this case you have a tax advantage by holding UK REITs in an ISA.

[GeoffF100]

Outside of the UK and US, dividends are frequently much lower.

Overseas companies tend to do a lot of share buy backs, because dividends are usually taxed less favourably than capital gains. I seem to remember that UK REITs have to distribute profits as PIDs and dividends. I expect that withholding tax applies to REITs in the same way as for other companies.

Lars Kroijer believes that the view that property is a separate asset class is mistaken. He points out that property shares account for only 1-2% of the world index, and says that over-weighting them does not make sense unless you know more than the market. It is certainly true that if everyone over-weighted property shares, they would become over-priced.

I expect that I am over-weight in UK REITs, and that selling one of them would bring me closer to a market weighting. I could invest the proceeds in a market weighted overseas tracker. That probably makes more sense than investing in a global property fund.

[Spet0789]

Corbyn would of course boost property prices by increasing infrastructure investment. but OTOH might eventually introduce a land value tax, taking back much of those gains.

a hard brexit, where we become an outright tax haven, could boost property prices, as international money rushes into UK property. but would be bad for the real economy, which could hurt property prices in the longer term.

my point is that politics can certainly affect investment returns, but how it will affect them is pretty much speculation.

It certainly is speculation and you make two spectacularly confident predictions!

Corbyn hasn’t said much about infrastructure investment. He’s spoken about nationalising existing infrastructure but that will do nothing for property. Historically, “investing in public services” is left-wing code for “pumping up public sector payrolls” - spending rather than investment. I agree that any moves to tax wealth will depress asset values. Overall I suspect that a Corbyn govt will be bad for all UK assets, including property.

As for hard Brexit, suggesting that it will increase property prices seems to me to be ludicrous. The prices of a few Chelsea townhouses may increase in GBP terms, even if 20% cheaper in EUR or USD. But homes near the Nissan plant in Sunderland or almost anywhere else in the real world probably ain’t looking too clever...

IMO, in either scenario you want your cash as far from the U.K. as possible.

[GeoffF100]

Becoming a far right tax haven with the attendant deep cuts in public spending would almost certainly put Jeremy Corbyn in Number 10. Unfortunately, we have gone from having two more or less sensible parties to a bunch of left wing crazies and a bunch or right wing crazies, which is not a recipe for stability. All we can hope for is a fit of moderation like they have had in Canada and France.

I cannot move all my equities overseas in one go. About 2% per year is the most I can manage, which may be just as well. Sod's Law rules here.