Lord Oakeshott: Buy property for safe haven income

Property is a better safe haven than gilts thanks to the way that yields have held up in the downturn, according to Lord Oakeshott, portfolio manager at OLIM.

With yields at seven per cent – a similar level to where they were at the worst of the crisis – the former Liberal Democrat spokesperson thinks income investors are missing a trick by overlooking the sector.

"There’s still a great deal of value around if you know where to look," he said. "You are being paid very handsomely for the extra risk you are taking against bonds."

"Seven per cent on the IPD index is a fair value."

He acknowledges, however, that there are still significant risks.

"Investors need to be able to handle capital depreciation, with falls of five per cent likely this year and next," he added.

Oakeshott, who was a special adviser to shadow chancellor Roy Jenkins, says the debt load means the current recession is worse than what the UK suffered in the mid 1970s.

He commented: "There is an awful lot of debt which it will take a lot of time to wash out. It’s worse than the early 80s recession."

"We need infrastructure spending in housing to get the jobs back into the economy. Rental values will not start to rise until the economy recovers."

However, Oakeshott believes there is some cause for optimism.

"Inflation will come down to two or three per cent quite soon. This will ease pressure on living standards."

"QE is a worry, and there is some inflation risk. However, we are going to have a depressed economy for quite some time, so from the producer side it’s going to be hard to get a price rise."

Lord Oakeshott says the reason Clinton Cards failed in the past few days was because it underestimated fluctuations in property prices.

"It wasn’t the internet that finished Clinton cards off – it was [rival] Card Factory taking the new business at half the rent. They are operating off today’s rents and taking Clinton to the cleaners," he explained.

He also believes Travelodge may have overpaid for its properties over recent years and suggests this could cause it problems in the near future.

Lord Oakeshott resigned as Liberal Democrat treasury spokesman in 2011 over the Government’s banking reforms, saying they did not go far enough on pay disclosure and did not guarantee lending to small businesses.