Pensions  

Dentons insists commercial property is liquid asset

Dentons Pensions is calling for UK commercial property to fall under a ‘halfway house’ in between the regulator’s standard assets and non-standard assets lists, arguing it is now a liquid asset.

Last year (22 November), the then Financial Services Authority published a consultation paper in which it proposes to increase the minimum amount of capital held by self invested personal pension providers from £5,000 to £20,000 and adding surcharges for total assets under management and holding of non-standard assets.

Commercial property has fallen under non-standard assets.

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In an interview with FTAdviser, Martin Tilley, director of technical services at Dentons, said he believes commercial property should not fall under this requirement, adding there could be a ‘halfway house’ for this kind of asset, where a premium has to be paid but not as large as for non-standard assets.

He said: “If you look at UK commercial property, the actual transfer process is something called a TR1 form, it is a transfer form so it can be done in a matter of days, and if you have to dispose of a property you could always put it to auction which usually disposes of it within 28 days.

“So in terms of needing to get rid of a property, there will be a secondary market albeit not necessarily at the full price but it is a sale of the assets.”

Mr Tilley added that overseas commercial property should come under the non-standard assets banner, however, warning it is more esoteric and more illiquid than UK commercial property.

He said: “If you look at these overseas hotel rooms, there is quite often less of a secondary market so they are a bit more difficult to dispose of.”

Mr Tilley believes commercial property is growing in popularity, despite the fact Sipp operators will have to hold more capital if they want to hold this.

He said: “Obviously with banks, from 2008 onwards, we had this horrendous problem and banks can’t lend to anybody and there is now more money to be lent - that is undeniable.

“The nice thing is that pension funds can only borrow up to 50 per cent of their assets so if you’ve got a £200,000 pension fund it can only borrow £100,000 which therefore gives it buying power of £300,000 and if you look at that as a loan to value, the lending is only £100,000 on a £300,000 property and banks are very happy lending at that sort of level.

“The nice thing about commercial property is it is a tangible asset, you are holding it in your pension scheme, you see in the bank account that the rent is going in every quarter, you can see the value of your pension scheme going up and that has a lot of appeal to people who otherwise are looking at the virtual world of pensions.”