Property exit advised

INVESTORS will be advised this week that now is the time to exit buy-to-let properties and switch to investment funds.

According to Hibernian Investment Managers, there is an increasing risk of lower returns from buy-to-let properties because of rising mortgage interest rates, falling rental incomes and significant entry costs such as stamp duty and management charges

HIM added that there were significant increases in supply with more than 80,000 new homes expected to be built in 2004, a 16% increase on last year, which is likely to put pressure on capital values.

Hibernian senior investment strategist James Forbes says: “complacency exists in the buy-to-let market and the prospects for significant capital appreciation have diminished rapidly. Valuations in the buy-to-let market are extremely stretched when compared to other assets. We would consider high yield equity stocks an excellent alternative, as these stocks are typically less volatile than conventional equities. Company balance sheets are awash with cash, thereby enabling companies to increase payouts at double-digit levels over the next three to five years.”

Research shows that since 1998, rents have only increased by about 5% a year and, in Dublin, rents have fallen by 17% over the last two years.

It is urging investors to switch into high dividend yielding investment products and said its fund had outperformed the market this year.

“Our research reveals that high yield equity stocks in the US have outperformed the overall market by 3% per annum between 1961-2003. We believe they are likely to continue to do so,” said Mr Forbes.

“Large well-established companies are generating more cash than they need for day-to-day business expansion.

“This excess cash is likely to be used to enhance shareholder returns in the form of share buy-backs or increased dividends.”

Davy Stockbrokers economist Robbie Kelleher said that over 20 years, the return on equities has been greater than property.