Property or equities?

I have a portion of my pension in a property fund. To what extent does the fund value depend on the sale value of the properties in which it invests? How worried should I be about talk of a downturn in property prices? Or does the fact that the fund invests mainly in commercial property mean that property prices have a correspondingly smaller impact?

Richard Anson, Reigate

There has been a lot of talk about property over the last few months and the attractions of property are understandable when one compares the performance to the equity markets.

However when you start to hear Joe Public talking about anything at a dinner party or down the pub it is invariably too late to make an investment. Do you remember all the chat about being a Lloyds name in the late 1980's or tech funds in 1999?

It is interesting that at a time when the private investor is buying in to property (whether it be buy-to-let residential property or commercial property) the experts are becoming increasingly bearish. A recent survey from the Royal Institute of Chartered Surveyors suggested that property prices will fall over the next year.

The price of a property is typically determined by a number of factors that included location, quality of tenant, the local supply, quality of the building and interest rates. At a recent auction held by the property auctioneers Allsop, over 31 properties were sold for more then £1m and the average price was nearly £600,000 for the balance of properties sold. Such auctions are usually attended by private investors rather than institutions/trade investors due to the typical size of property being sold.

Institutional property transactions are often done "off market " i.e. directly between buyer and seller (as opposed to via an auction) yet there has been a dramatic increase in the amount being sold at auction.

The amount a private investor will pay for a property is often far more than an institution, as a private investor is often looking for a return that is better than cash - i.e. base rates as they are often cash buyers. However a professional investor usually needs a return of at least 2% or 3% over base rates as they are having to borrow to invest.

It was interesting to see at a recent auction that Kwik Fit sold 36 out of 42 premises for a total of £17.5m on an average yield of 5.95%. You have to ask your self does this sound a good acquisition or was it a shrewd sale by Kwik Fit? Depending on your answer you are a seller or a buyer in these current markets.

Property investing is a specialist skill where substantial capital, in order to obtain diversification is needed and investors need to be prepared to be able to leave the capital tied up for potentially a number of years. Sure, you can get lucky and interest rates could fall lower but it seems the easy money has been made already.

I was interested to hear the quote of one professional investor recently which possibly sums up the property market at the moment. "The chase to property is in my view the direct opposite to the internet boom - real property, real income, real profits and really difficult to sell in a slump. Buyer beware."

Commercial property prices will have little correlation to domestic prices but they will be effected by interest rates. While few are predicting interest rates to rise soon, already in the last week five year rates have crept up and properties with long term leases will act in a similar way to long term gilts, i.e. as rates rise the capital values will fall.

Jonathan Fry, managing director, Premier Asset Management

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.