There are still hot properties if you know where to go

Laura Howard looks at an exchange where you can beat the market jitters by buying shares in selected houses
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The Independent Online

The housing market, it seems, is finally on the wane and the time of easy profits may be over – at least for now. Last week, property website Rightmove said the price of the "average" property had fallen by 2.6 per cent in the month to 8 September. Likewise, the Royal Institution of Chartered Surveyors (Rics) reported that more of its members said prices were falling rather than rising for the first time in over two years.

However, homeowners and property investors can pull two, more reassuring, certainties out of the dust. The first is that, in recent history, overall prices have increased massively – 327 per cent in the past 20 years, according to figures from the Halifax, despite falls of up to 5 per cent a year during the 1990s.

The second is that an "average" price is a misnomer. The diversity of the UK means that while some property types, regions or even roads may behave as the average dictates, others will be moving at their own pace. Pick the right house in the right area and you can outperform the overall market.

These are the two certainties that underpin The Property Investment Market (TPIM) – a mini stock market focusing solely on residential homes.

The website, at www.the-propertyinvestmentmarket.com, would seem at first to belong to an estate agent as it lists a range of properties, complete with pictures and descriptions, from across the UK. However, alongside the valuation is a share price, which is updated on a daily basis.

"Our investors 'stock pick', buying shares in a certain type of property in a certain area, say two-bed flats in Guildford," says Gavin Davidson, a director of TPIM. "Due to demand, 70 per cent of our stock is in the South-east, but other areas include Durham, Leeds, Manchester and the Wirral. Currently we have 57 properties available for investment."

Investors can start their portfolio by purchasing shares in one or several properties – although they cannot own more than 10 per cent of any single home. They can then buy or sell shares on the exchange at any time.

Before they start trading – for which they will be charged a 1 per cent fee on each transaction – they will need to open an account with TPIM. Any funds of £250 or more held here will earn a healthy 4.5 per cent interest while the money awaits investment in property shares.

While the minimum investment is £1, which is also the starting price of shares, the average put down initially by the site's 4,000 members is around £300, says Mr Davidson. The largest to date has been £50,000.

All properties on the exchange are rented out by TPIM using a lettings agent. Dividends from rental yields (less expenses such as management fees) are paid on a quarterly basis where the home is not mortgaged. If it is, there won't be any dividends. "Investors in geared [mortgaged] property tend to concentrate on capital growth," says Mr Davidson.

TPIM investors are not liable for the mortgage debt – a comfort in the face of rising rates and the uncertainty caused by the credit crunch. "The mortgage liability lies with the firm that owns the property," explains Mr Davidson. "This is a luxury that buy-to-let investors don't have."

However, there do seem to be some drawbacks with TPIM. "You can only sell your shares if there is a buyer," says Melanie Bien, director of broker Savills Private Finance. "As the exchange becomes more popular, liquidity will improve, but I can't imagine there is much of a market in the current climate. So you may be stuck with shares that you can't sell."

This point is echoed by Richard Hunter at independent financial adviser Hargreaves Lansdown. He says that the most reliable shares in terms of liquidity are still to be found in the FTSE 100.

But Mr Davidson counters: "It is not about liquidity, only about share price. There is always a buyer if the share price is right."

"The other downside is that you don't benefit from any of the tax breaks available to landlords," says Ms Bien. "Because you are investing in a share of the property, you can't offset the mortgage payment against rental income."

TPIM intends to extend its service to include commercial and overseas property soon, but to do this it must be regulated by the Financial Services Authority. The site is still awaiting FSA approval.

Six to view in the North-east

£725,000

Houghton le Spring, Tyne & Wear

Victorian manor house; six bedrooms; dining, living and ballroom; gardens

£550,000

Warkworth, Morpeth

Detached four-bedroom house set in over an acre of attractive gardens

£450,000

New Silksworth, Sunderland

Five-bed, three-storey detached house with three receptions rooms; commanding views

£395,000

Wesleyan Church, Binchester

Four-bed converted church with 60ft workshop attached

£285,000

Sunniside, Newcastle

Three-bed, detached stone cottage with garage and gardens

£194,950

South Shields, Tyne & Wear

Three-bed terraced cottage; study, front garden, excellent view of sea

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