Residential property fund of family homes to be launched

Amanda McHugh, director of newly formed Garratt Property Group, said the Garratt Residential Property fund, like UK Property Buyers, would target safer two to three-bedroom family residences and would avoid riskier areas such as holiday homes and student accommodation.

The fund will be structured as a Luxembourg-domiciled Sicav-Sif for informed investors and will invest in physical property at distressed discounts of 15 to 20 per cent to current valuations.

Sicav platform KMG Capital Markets Luxembourg, led by chief executive Kevin Mudd, will administer the fund and help market it to overseas investors, who it is hoped will be drawn to the UK residential market due to its low supply problems and historically high prices.

McHugh said the fund would aim to raise between £50m and £100m, with a £20,000 minimum investment.

Rental yield on the fund would be a minimum of 6 per cent. The director anticipated two fifths of the assets on average would be backed by debt with a variable rate initially and a 4 per cent to 4.5 per cent coupon thereafter.

This arrangement would give the fund a gross exposure of 160 per cent. The maximum gross exposure in a Sicav-Sif is 180 per cent.

The investment term of the fund will be five years, at the end of which it will wind up and pay out its capital and rental income.

McHugh anticipated valuations could move sideways for two years, but cited figures from the National Housing Federation saying house prices would be 20 per cent higher in five years' time.

This would give a substantial uplift when house prices rose and the distressed discount at which the fund bought its properties narrowed, she said.

Initial IFA commission on the fund will be 3 per cent. Trail commission will be 0.5 per cent.