By Ian Fife

It looks as if the British commercial property market is about to follow the slide of its residential market. With SA property likely to continue giving double-digit returns over the next five years, should you bother to look offshore?

London-based wealth manager Credo, owned by South Africans, believes you should. It has launched its third property investment fund since 2002 - this time for 150m Pounds - and has already raised most of the 35m Pounds equity it needs.

Much of that was raised before the global liquidity crisis, and some Credo investors might imagine they're in for a white-knuckle ride.

But Credo property chief Gavin Rabinowitz says these conditions are ideal for picking up bargains in niche property markets over the next year or two.

"Prices will fall as UK property capitalisation rates [ the percentage return investors demand from net income in the first year] rise, and banks stop lending up to 95% of the cost of a commercial property," he says.

"It's a great time to be in this market with cash. There will be distressed owners selling, and prices on the periphery of the prime office, retail and industrial markets could fall by substantially more than the 12% predicted by [analysts at] Capital Economics," says Rabinowitz.

Credo had already started buying retail properties in Switzerland and Germany, after selling much of its UK holdings "to take advantage of fantastic prices". Now it has turned its attention back to the UK.

Rabinowitz says he will take his time. "Our mandate gives us 18 months or more to wait before buying, so we can pick the best timing and properties. The fund aims to run for five years, but we could extend it another two." It will be listed on the stock exchange in Guernsey, which is not particularly liquid but gives SA investors the opportunity to invest equity from SA through asset swaps with institutions.

The Credo funds have given investors an 89% return on equity since 2002, slightly better than the sector return of 84% and well ahead of the 62% return from the FTSE 100.

But for some investors, this is far from perfect. "I can't complain about my IRR on my Credo investment of 28% over 18 months, but I invested in the project because it was intended to last five years," grumbles one investor. "Credo tends to make its own decisions without [ referring to] its investors."

Financial Mail