Stewart Dick of Hornbuckle Mitchell
Sipps specialist Hornbuckle has warned that proposals from the government to allow commercial property to be converted to residential use and then included in a Sipp could face obstacles.
As commercial property continues to offer an attractive proposition to pension investors, Hornbuckle Mitchell's head of sales Stewart Dick says any proposal by the government to allow pensions to turn commercial property into residential may come up against stumbling blocks.
He said: "There was a flurry of interest when the Government announced it would consider changing investment rules to allow pension schemes to invest in commercial properties with a view to converting those into residential.
"The notion of pensions investing in residential properties is an interesting concept, but as ever the devil is in the detail. With so many unknowns, the likelihood of it happening is questionable. For starters, the proposal will only work if local authorities grant planning permission to allow the change of use to commercial and there's been no word on this as yet.
"Furthermore, would we allow pensions to convert commercial property they already own, purchase empty commercial property with the sole intention of converting to residential and / or purchase property that was historically commercial but is already residential?"
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Mr Dicks say that a line would need to be drawn at this stage on what happens if a development is part-built or part-converted? He asks whether the pension purchase can finish the process and how many times can a pension convert property without it being classed as trading?
He added that the argument put forward for converting commercial property into residential use to help regenerate town centres and find a use for boarded-up commercial units that have long gone out of business may not be what people want in a town centre.
He said most importantly from an investment point of view, development of unused commercial property has to be profitable. It is currently possible for a Sipp or SSAS to buy an unused commercial unit today and obtain permission to convert it to residential as long as it's sold before it becomes habitable.
He said: "Is the uplift in value from gaining permission enough to make this attractive in its own right, without the added expense or hassle of development work? If it is, then we can do that today."
Hornbuckle Mitchell is a corporate member of the IFP.
