BJM bets on British property

Johannesburg - Despite the turmoil in London's financial markets, UK property may present opportunities for South African investors looking to diversify their portfolios.

This is the view of Barnard Jacobs Mellet and Cornerstone Asset Managers, which have launched a joint UK-focused property investment firm.

British Capital will be a "closed-ended" property investment company that will run for an initial five-year term with the opportunity to extend it to seven years, should the investment show promise.

At the end of the period, the company will be liquidated and investors will receive a dividend. The firm will be listed in Bermuda.

"In dollar terms the local stock market is up nearly 70% and it is probably about time for local investors to start looking at opportunities offshore," said Mark Appleton, chief investment officer of Barnard Jacobs Mellet

As a services-driven economy with large exposure to the financial services sector, the London property market experienced a boom in the good times.

But London property prices have been battered by the financial crisis, with some properties being devalued by more than 50%.

"In our view London will remain a viable financial centre," maintained Appleton.

There are also other risks, including climbing interest rates.

Political and legislative changes are the unknown variables investors need to factor in.

British Prime Minister Gordon Brown has been under pressure to resign, as the financial meltdown exposed the UK's dependence on the financial services sector to generate revenue and create jobs.

Pound exposure fillip

With the UK government forced to bail out ailing financial services firms and banks, new legislation has been adopted which some market commentators believe may drive professionals from the UK.

Appleton conceded this could be a threat to the London market, but pointed out he had met investment managers in Europe who were upbeat on its prospects.

However, the investment's five- to seven-year timeframe also needs to be considered. On Wednesday, the Organisation for Economic Cooperation and Development (OECD) released a report predicting a 4.3% contraction in the UK economy, with only a "mild" recovery forecast for 2010.

Low economic growth could potentially stifle property price appreciation.

However, Appleton believes the investment's exposure to the pound could provide a positive spin-off for local investors.

"We think it [the pound] has some rebound potential after being sold off," said Appleton.

But why should an investor consider British Capital, as opposed to a JSE- and UK-listed company like Liberty International, which owns many premium retail sites in the UK?

Appleton said Liberty's primary exposure was to retail properties, while British Capital saw better value in industrial-type properties such as warehouses and buildings rented by government institutions like the police.

He felt British Capital would provide "a cleaner, more transparent investment vehicle".

Liberty International - long regarded as the primary investment vehicle for local investors wanting exposure to the UK property market - recently went to the market for a capital injection as it was stumped by falling UK property prices and a leveraged portfolio.

- Fin24.com