Upfront charges for investing in commercial property range from nothing to £1,900 and there is the possible, if unlikely, chance of fees being even higher with providers who operate on a time-cost basis. The number of properties has increased dramatically since the survey was last conducted in April, rising from 26,529 to 31,630 (a 19 per cent jump). It will be interesting to see how providers and investors approach the property market in the forthcoming months, especially with the raft of open-ended fund suspensions arising from investors’ mass withdrawals in the wake of Brexit.
Andy Leggett, head of Sipp business development at Barnett Waddingham, highlights changes to energy performance requirements as another obstacle faced by pension providers when investing in commercial property. Part of the problem is that requirements are different in Scotland compared with England and Wales, something that it is imperative for Sipp firms to be aware of.
He says, “This is a good example of where providers that are experienced and knowledgeable in commercial property can give valuable help to advisers and members. Those who fail to act in time could face fines, be unable to lease their properties, and see their value and marketability decrease.
But on the other hand, those who navigate the changes successfully could see their properties become more valuable in the long-term.”
Table B delves deeper into general commercial property fees, with responses again showing a significant amount of variety. With most firms operating on a fixed basis when applying fees for purchases, borrowing, leasing and environment reports, a handful of providers adopt a time-cost basis.
Eddy Woore, senior consultant at Mattioli Woods, says that investing in commercial property within a Sipp is highly beneficial, “There is no disadvantage over the long-term compared to diverse, standard investment strategies, and many feel it avoids the fluctuations of markets they don’t understand as well.”
Are they adequate?
Data from the survey presents a picture of how providers are adapting to a landscape that has shifted constantly in recent years. The timing of this year’s survey is a case in point, arriving shortly after the FCA’s new capital adequacy requirements came into force on 1 September. Although it should be noted that all data is as at 1 August 2016, so falls one month shy of the regulator’s deadline.
The requirements were announced by the regulator back in 2012 to tackle concerns about insufficient capital being held in cases where a provider is being wound down and subsequently transferring benefits elsewhere.
Table 3 indicates the current state of affairs with regards to capital adequacy of all firms surveyed, including the percentage of the requirement covered, and whether commercial property is being treated a standard or non-standard asset.
