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Heartwood calls for investor transparency

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04/03/2008

Heartwood is calling for greater transparency in the property industry’s investor information, as analysis of industry research suggests retail investors have been sold commercial property funds at an inappropriate time.

Heartwood’s analysis of advertising data suggests that during 2007 investment management firms spent £20m advertising commercial property funds to retail investors.  Yet real estate funds reported an outflow in the last quarter of 2007 of £1.65bn, as the commercial property sector continues to plunge in value.

Heartwood believes that a key source of the problem is the mismatch between the calculation methods of stock market indices such as the FTSE 100 and property investment indices such as the IPD UK All Property Monthly Index.

While the share indices are based on live transactions which discount future trends, this IPD index is compiled by surveyors as a desktop sampling exercise on a limited number of properties without actual transaction data.

According to Heartwood, the IPD UK All Property Monthly TR index is slower to react to developing trends, as illustrated by the fact that it showed increases throughout the first eight months of 2007, rising 4.59%, while the FTSE all-share real estate index fell over the same period of time by 19.06%. Over the full twelve months of 2007, the IPD UK All Property Monthly index fell just 5.48%, while the FTSE All-Share Real Estate index closed the year down 36.6%.

David Lough, chief executive of Heartwood, said: “Many investors have had their fingers burnt by the commercial property market and certain retail fund management firms have contributed to the problem by advertising funds which, in the conditions developing during 2007, had very little hope of achieving a respectable performance.

“Now some are locked in because the funds cannot be sold. It’s disappointing that investor information on the sector is still so tied to the IPD Index, which has been exposed by recent events to be flawed. We believe that the commercial property sector would benefit from adopting a more market-based yardstick to avoid the type of information lag that has affected so many retail investors.”

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