House prices are on the up, but what does this mean for the wider property sector? Is now the time to invest? Laura Miller finds out

Britain’s housing market has finally “turned a corner”, according to surveyors, who reported this month that rising prices and activity are no longer confined to the South East but are being seen across the whole of the UK.

House prices rose in July for a fourth consecutive month, marking their fastest growth since November 2006, according to surveyors polled monthly by the Royal Institution of Chartered Surveyors (RICS).

Residential property is not readily investible via funds, except through real estate investment trusts (REITs), but the uptick in this part of the sector looks to be mirrored in the broader property market – according to sales data from Cofunds, property sectors accounted for 67% of net sales last month, the third highest.

Caution

So on the face of it, property investment looks hot but multi-managers and analysts are sounding notes of caution.

Investec portfolio manager Max King reckons this is a poor time to invest in the bellwethers of the property market – housebuilders.

“The right time was about 18 months ago. As always, equity prices lead the actual market, so the upturn in the market is well in the price. There may be more upside but it would be smart to distrust the support being offered by the government. House-builders want buyers who can afford their prices, not those dependent or motivated by government subsidy.”

While property shares have performed well in the last year, they have come off sharply in the last month, which King said may be seen as a reasonable time to add exposure, but only to selected companies.

“In property shares, it is critically important to buy the right companies; those with the best assets and best development for the market outlook and with a proven record of adding value, sound finances and reasonable valuations. Paying up for quality is rarely a mistake; careful due diligence never is,” he said.

Charles Stanley Direct head of investment research Ben Yearsley is even less enamoured with the sector than King.

“I honestly can’t get too excited about property. Yields are in the 2% to 3% region generally and all you need do is look round to see all the empty commercial properties. I wouldn’t have too great an exposure to property – I’m not hugely positive and it is an illiquid asset class,” he said.

Bright spots

However, Yearsley does see a few bright spots in the property space.

“Caravan parks, for example, I’m a big fan of and I also think big regional distribution centres do well too, as the internet continues its domination of high street shopping. Property funds I like include the Henderson UK Property fund.”

Fidelity Investment Solutions group portfolio manager Eugene Philalithis drills down even further into the property market – splitting out London from the rest of the UK.

“Managers we speak to suggest that prime property in central London is fairly valued, on the whole,” he said. “But the real opportunity is in secondary – outside London mainly – where the yield gap to gilts and prime property is at a record level. Physical bricks and mortar funds look most appealing, as listed property securities are fully valued.”

Bubbling up?

There is a lot of talk about a property bubble as a result of the government’s Help to Buy scheme but is it well founded? Philalithis thinks not.

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