Public interest in commercial property investment is expected to increase further according to the RICS’ annual commercial property forecast published in April. Commercial property returns continue to attract individual private investors with total returns in 2005 remaining close to 20% for the second consecutive year.

Overseas investors have been the dominant force in the market in 2005, accounting for £15 billion or 30% of all purchases. Buyers from the Middle East have been particularly active as rising oil revenues have increased spending power. UK institutional investment accounted for £11 billion of all direct commercial purchases in 2005, though net investment receded to £2billion after peaking at £4 billion in 2004.

2005 also saw the return of equities as the front running asset class with returns outstripping those of commercial property for the first time since 1999. However, the advent of UK Real Estate Investment Trusts (REITs) is expected to further entice retail investors into commercial property funds through ISAs and SIPPs.

Suggestions that a tightening of the borrowing rules governing SIPPs could hurt the investment market are dismissed by chartered surveyors who, in a recent RICS poll, said that the changes would not affect the market place or appetite for commercial property in pension plans.

RICS forecasts a decline in total commercial property returns in 2006 and 2007 - 17% and 9% cent respectively - as a result of a slowdown in purchaser activity.

RICS economist Oliver Gilmartin said: ‘The doors to commercial property are opening up to a much wider audience and individuals are beginning to appreciate that this kind of investment can generate income whist exposing them to comparatively reduced risk. We are seeing a rush into tax sheltered savings plans from those wishing to diversify their portfolios and spread their investments across different asset classes and geographical areas. However, while the next two years will continue to see healthy returns for investors in UK commercial property, some will be disappointed if they are expecting the kind of stellar performance experienced in the last three years.’

PROPERTY DEVELOPER STANDS UP TO THE TAXMAN

TAX experts are advising property developers to stand up to HM Revenue and Customs after it put forward ‘ludicrous’ arguments at an appeal tribunal. Private individuals can claim back VAT on most materials purchased for building a house or converting a non residential property into a house. In the case of Dr Robert Nicholson, a barn and outbuildings were converted into a house and annexe. In this type of transaction, VAT can be reclaimed when the house is finished. However, in this case, Dr Nicholson had received incorrect decisions from HMRC stating that VAT was chargeable on some of the work when it should have been zero-rated. When he tried to reclaim the VAT he was told that his claim was now ‘out of time.’ A tribunal followed and HMRC argued that the outbuildings did not become a separate dwelling, that they could not be used independently of the main house and that the scheme only applied to single buildings. All points were summarily dismissed by the tribunal.

The tribunal then gave both parties 28 days to respond. HMRC did not respond and subsequently the tribunal decided in favour of the taxpayer.

Simon Newark, VAT partner at national accountancy firm UHY Hacker Young, says developers must battle if they believe wrong decisions have been made:

“HMRC are notorious for running arguments that, if taken seriously, would mean that no conversions could ever qualify for reclaim. The arguments used here were utterly ridiculous. Many taxpayers would have been intimidated by HMRC and accepted their first decision. This case proves our long-held view that the worst mistake a taxpayer can make is to assume that HMRC must be right and it also shows that decisions by the taxman can be battled - and won.”

UNIVERSAL COMPLETE SALE IN RECORD TIME

The purchase of a prestigious building in a prime Newcastle location has been completed in record time, thanks to North East based Universal Building Society. Universal’s commercial lending department provided funding to SNS Properties to acquire the Dean Street property, which is let to Pizza Express for the next 15 years.

Against stiff competition, SNS agreed to buy the freehold building at an Allsops Auction in London and three weeks later completed on the purchase.

SNS’s property funding advisors, Thinc Destini, identified Universal as a funder and worked swiftly to agree a lending structure. Knight Frank valued the property for the Society in record time and with Sinton’s solicitors all parties worked together to achieve the required completion date.

Craig Garbutt, Commercial Lending Manager at Universal Building Society said, ‘We were delighted to work with SNS to provide the lending facility. Properties such as this are in short supply and we needed to work rapidly with the purchasers to agree a lending structure that worked.”

A spokesperson for SNS Properties said, “There remains significant competition at the auctions to acquire a property of this quality, but we were keen to secure 10 Dean Street as very few good quality freehold assets come onto the market in Newcastle City Centre.”