15
FUTURE MARKET DEVELOPMENTS
With the introduction of PS13/3 there is the possibility that many property schemes will be classified as a collective and therefore
a UCIS. This will mean that:
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1. They will need an authorised operator;
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2. There will be restrictions upon the distribution of the schemes.
“Property has a place in a well-diversified portfolio, but should not account for more than 30% of
the portfolio’s assets.”
PORTFOLIO SUITABILITY
The retail investment market for purpose
built student accommodation is still
relatively unproven. The investment is
likely to be illiquid and there is unlikely to
be a clear exit strategy in place. Despite
this, the sector has seen a large amount of
investment from funds and institutions in
the last few years which show it to be a solid
asset class.
One thing that investors and their advisors
should be aware of is that directly held
student accommodation is unlikely to be
classed as a SIPP acceptable product. HMRC
rules do not allow a SIPP or SSAS to directly
own a residential property. If the asset
was held through an investment structure
such as a syndicate or genuinely diverse
commercial vehicle (GDCV) then it could be
acceptable but this is not applicable to the
vast majority of student investments.
Due to the relatively high capital required
student property is only likely to be suitable
for medium to high risk or investors with a
large amount of capital. Property has a place
in a well-diversified portfolio but is unlikely
to be a core asset or account for more than
30% of the portfolio.
A well-diversified investment portfolio
would normally be based around a mixed
exposure to equities, fixed income, property
and cash, adjusted to suit the investors’
attitude to risk and capacity for loss.
Increasingly investors are also allocating
some of their portfolio to commodities and
real assets as well.
Any surplus assets remaining after
conventional financial planning needs
have been addressed could be invested
in alternative investments, social impact
investments and non-mainstream
investments held in structures such as
Enterprise Investment Schemes (EIS),
Venture Capital Trusts (VCT) and Unregulated
Collective Investment Schemes (UCIS).
Schemes will close as they can no longer find enough new investors (see the Brandeaux example)
Schemes that were previously unauthorised will find an authorised operator and become fully fledged UCIS or Qualified Investor
Scheme (QIS). This is probably the quickest and cheapest way forward for these schemes, but of course they will have to adapt to
the marketing restrictions
Schemes will become Property Authorised Investment Funds (PAIFs). These would take the form of a non-UCITS retail scheme
(NURS), which would be an Open-Ended Investment Company (OEIC). The scheme could then continue to be promoted to
anybody including ordinary retail investors. This is a more expensive process and scheme operators will have to rise to the
challenge of managing a unitised scheme: the pricing of units, managing price adjustments such as dilution levies and setting
dealing frequencies will need to be carefully considered to ensure that no investors are disadvantaged.
Schemes will structure as Real Estate Investment Trusts (REITS). These would require much more liquidity, would be much more
expensive to set up, have higher standards of regulatory scrutiny and could expose a potential return to the NAV discount that
other closed-ended funds tend to trade at in the UK market. For these reasons we do not think the smaller scale schemes in the
student property sector will go down this route, this is more suitable for much larger property concerns.
Schemes will do nothing and hope that they are not classified as a collective. This is the cheapest option with the fewest
restrictions on marketing, but the consequences of getting this call wrong are very serious. Operating a collective investment
scheme without authorisation is a criminal offence.
Note that the points raised here would apply to any property investments schemes and are not solely restricted to student
property.
This is likely to have a couple of consequences that will play out in the market over the next 12 months or so:
