Cover your online liabilities with cyber liability insurance

Advances in technology and the rapidly increasing prevalence of the internet in our lives means that websites are becoming an increasingly attractive way for firms to market their products and their company's values. But alongside the luxuries afforded in an increasingly technologically advanced computer age of online ubiquity come ever complicated legal issues relating both to the dissemination and protection of unique material and concepts.

In a climate in which potential risks to a business (or individuals) are becoming increasingly ambiguous, the purchase of cyber liability insurance is becoming important for many. Certain policies will provide cover on a number of issues, including the security of a network, copyright infringement protection as well as measures to offset the potential loss caused if a company's internet provider goes down or through loss associated with a computer attack. Information security and the protection of data is an imperative for many businesses, particularly those storing sensitive information.

The risk and cost of spreading viruses, worms and Trojan Horses may also result in damage to third party computer systems or records and can draw businesses into situations which are hugely draining of resources. Perhaps the most famous case relating to this issue was the ILOVEYOU bug, which infected approximately 45 million company files and cost a total of $2.61 million (£1.3 million). By searching the market for the best possible deal, firms will be able to acquire cover which will pay the cost of system and data repair, reimburse revenue as a result of lost downtime and pay towards legal costs if a third party holds them responsible of spreading a virus.

Protection is also available for damage experienced to a firm's computer network or any data held relating to third parties. And recent research carried out by the Businesslink website

Graeme Trudgill, technical services officer at the British Insurance Broker's Association, has said: "An approved cyber-liability product is a valuable new addition, particularly at a time when businesses are becoming more and more dependent upon the use of email and internet connectivity – and so are exposed to greater risks from malicious attacks on their system." shows that firms are becoming alive to the dangers posed by web security risks. According to the group's research, almost half of SME managers believe they may be subjected to a security risk next year from problems such as electronic viruses, suggesting that adequate cyber liability insurance would ease the worries of those group's utilising online resources.

Develop a disaster recovery plan for your business

While managers at businesses of all sizes would crave the prospect of having complete control over their firms, the reality is that the running of a firm is becoming an increasingly precarious business. The recent political climate has, realistically, not been conducive to the smooth working of businesses, particularly with the fallout from the 07/07 bombings in London still being fresh in the memory. Or what about the Buncefield disaster at an oil depot in Hertfordshire in December 2005? The blast, which was allegedly heard as far away as Holland, is still being borne by homes and business. And, perhaps most topically, recent inclement weather, causing high winds and even flooding in certain areas of the country, might alert businesses to the potential dangers. Indeed, the Association of British Insurers last week indicated that high winds and heavy rain were likely to increase the dangers to property owners and see insurance claims rising. Commenting on this seeming apathy among businesses, the managing director of communication solutions provider Mitel UK, Graham Bevington, has said: "Although business continuity has become a higher priority, it's clear that the vast proportion of UK firms are ill-prepared to maintain operations if employees are unable to get back to work."

But are businesses taking heed of the obvious measures? Research would suggest that they are not being as pre-emptive of a potential disaster as they should be. Figures released by Continuity Central this month show that approximately half of firms in the UK said they did not have sufficient plans in place to deal with events such as a flood, fire or act of terrorism. Sole traders appear to be even more apathetic to potential disasters, with over a third of respondents who participated in the survey saying they had a procedure in place to deal with an unforeseen event. Some appeared to be nonchalant about the potential effects, with 29 per cent saying it was unlikely to affect them, while 11 per cent said they had no time to deal with the problem. Mitel says that retailers are the most disinclined to plan for the unexpected, with almost two thirds taking more than 48 hours and 28 per cent taking over a week to get firms in working order again, a predicament likely to adversely affect many, especially smaller retailers.
Small firms with more than ten employees appeared to be more alive to the benefits of implementing a disaster recovery plan, with 57 per cent suggesting they did have sufficient measures in place. More generally, small businesses might have less time and resources to implement a disaster recovery plan, so the above statistic would seem to show that larger businesses may be apathetic. Despite appearing to be burdensome, efficient planning for the eventuality of a disaster does not need to be the Byzantine task that many might believe it to be.

One of the most important measures to undertake first in the construction of a suitable disaster recovery plan would be to assess the impact of likely events. This could involve specially designated members of the team working out the risk(s) likely to threaten a firm most significantly. While some of the most obvious threats include fire, storms and floods, firms should also take into account the potential threat of less obvious problems, such as the death of an employee or the emergence or failure of a new competitor. By identifying these problems, firms of all sizes will be able to decide which risk to protect themselves from with the greatest urgency.

Developing the plan may then become necessary to work out how the firm would most successfully tackle a threat – in the form of a business continuity plan. The manager of an organisation might like to consider issues such as how disruption can be minimised, how the normal functioning of a business can be maintained, and, if problems have been severe, how to return a business to normal operating procedures as quickly as possible. Once a continuity plan has been successfully formulated, testing the plan to see if it will work adequately will be a necessary procedure to undertake. Many commentators believe this to be the most important part of the process because it is by testing that the plan can gradually be evolved over time and planning can be undertaken to assess how a business will continue operating in the face of an interruption. While recent research conducted by Strohl Systems and CPM-Global Assurance has found that over half of organisations who took part in a poll have exercised their plans, the president of business continuity group Strohl, Brian Turley, stressed the importance of testing a plan. "It is encouraging to see businesses testing plans, but the number of businesses with an untested plan is still too high. Those organisations are needlessly risking their operations by blindly trusting an untested plan," he said.

So, the threat to business continuity may be a greater possibility from any angle. This may be apparent in the field of IT, with businesses increasingly relying on IT systems to go about their daily tasks. However, despite the fact that recent research by AMI-Partners shows that IT expenditure will amount to £18 billion this year, firms must realise that they cannot be vigilant enough in their efforts to make continuity as smooth as possible. It should be a business' aim to recover from such incidents as quickly as possible and the implementation of a comprehensive disaster recovery plan may be the best way of mitigating against unexpected events.

Interest rate cut no cause for relief

Interest rate cut no cause for relief

The UK's money markets are sounding alarm bells after the Bank of England confounded prior expectations by pushing through interest rate relief - even as oil continues to take a heavy toll on inflation.

A shift in priorities saw the Bank impose a 0.25 per cent cut to the base rate this week, primarily in response to warning flares from the Financial Services Authority (FSA) as well as a steady stream of reports about the faltering
property market. Before those reports, however, there were recurrent falls in the short sterling futures market - an indication that investors felt rates were unlikely to fall.

The market works by enabling investors to place bets on what level the base rate of interest will stand at in three month's time. Whenever experts believe it has overly-optimistic expectations of a rate cut, investors move in their droves to sell three-month sterling deposits, in turn driving down their value and realigning the market's rate prediction to a more appropriately-high level.

And with the Bank's latest inflation report raising doubts over the prospect of interest rate relief, that downward realignment of the market happened continuously in November - gradually lulling investors into a false of security
that the Bank's hawkish and unyielding stance would not waver to the threat posed by the credit crunch.

This prevailing belief - which dominated market activity for weeks - came in spite of the fact that analysts and experts from all corners of the economy have long been railing about the devastating impact of the crunch on the housing market and consumer spending - literally crying out for interest rate relief to offset any further dampening of growth.

In response to such concerns, the Monetary Policy Committee (MPC) had been distinctly muted, merely acknowledging that a cut was desirable and saying one could be in the in the offing in the longer-term. It acknowledged the toll that five rate hikes since last summer had taken on mortgage holders and borrowers,
but consistently cited concerns over inflation as a reason for keeping rates high.

November's Consumer Price Index (CPI) clocked up a higher-than-expected 2.1 per cent annual level of inflation - primarily due to the rising cost of crude oil.
Tightening of the oil market led to November crude prices hovering precariously close to the $100 (£49) a barrel mark in the States, while on this side of the Atlantic petrol prices teetered close an equally significant psychological level
- £1 per litre. Higher oil prices mean higher inflation, and the Bank's ultimate remit is to keep inflation and not interest rates low.

The burden of rising oil prices filters down into almost all sectors of the economy by driving up transportation costs for the vast majority of manufacturers. With the Producer Price Index - more colloquially known as 'factory gate prices' - recording a 12-year-high level of inflation in October, a widely-predicted knock-on effect to the CPI materialised last month and this rise in the price of everyday consumer goods is ultimately what had stayed - and
investors thought would continue to stay - the MPC's increasingly jittery hand.

Their confidence was only emboldened by the fact that OPEC expressed little appetite for stepping-up oil extraction and the Treasury constantly scoffed at calls for lower fuel duty. And yet as early as mid-November the first inklings
of a shift in MPC policy had already begun to surface.

The Bank's latest Quarterly Inflation Report - the first since the credit crunch - predicted growth in the current financial climate would taper off to such a degree that the rate could safely fall to 5.3 per cent by the end of 2008. Much as the credit crunch caused the mortgage crisis, it was paradoxically being presented as its potential saviour - with the gradual easing of CPI pressure compounding a relatively-benign predicted average oil price of $74.43 (£36) a barrel and, hypothetically at least, allowing the Bank to direct some relief towards the faltering housing market.

Next up was Nationwide's harrowing house price index, which recorded the biggest drop in property inflation for 12 years. Analysts slowly started fretting over the gravity of the situation and rumblings duly surfaced that the time might have come for a rate cut. In the immediate run-up to the decision, Paul Dales of Capital Economics said the call would be "one of the closest for some time," while Howard Archer of Global Insight said it "balanced on a knife edge".

The final straw, coming dramatically on the eve of the MPC's meeting, was a warning from the normally tight-lipped FSA that the credit crunch is set to worsen. With the authority predicting "significant consumer stress" to come -
not least of all for the 1.4 million homeowners whose short-term fixed-rate mortgages expire next year - the Bank was ultimately left with no choice but to heed their call and lower the rate to 5.5 per cent.

"The MPC has given an early Christmas present to homeowners and may have gone some way to pre-empting an economic slowdown in the months ahead," said Trevor Williams, chief economist for Lloyds TSB Corporate Markets.

His caveat: "Nevertheless, inflation remains the top priority for the MPC and further rate cuts will only happen if the economy continues to slow and inflationary pressure subsides."

Commercial property outlook 2008

Global commercial real estate faces a difficult year ahead as the fallout from the credit crunch continues to sink into property credit markets - though many analysts speculate that higher risks could translate into big gains for some hawks.

Investors are increasingly balking at opportunities to buy bonds backed by commercial mortgages, mindful of the unsuspecting woes that crept up to the US housing market following the recent sub-prime crash.

As hundreds of thousands of bad credit US homeowners began defaulting on their mortgages this summer, the realisation dawned on investors around the world that their portfolios could include repackaged debt from the collapsed mortgage market.

Uncertainty over the reach of irresponsible lending practices in the sub-prime sector ultimately led to a collapse of confidence in commercial property, with the price for corporate mortgage-backed securities gradually slipping as buyers increasingly raised doubts over the tenability of such bonds.

Alluding to a 1.9 per cent fall in the prices of shops, offices and industrial property, William Mack, founder and senior partner of Apollo Real Estate Advisors, told Reuters that capital markets were effectively "frozen".

But the combination of a dwindling supply of credit and falling real estate securities prices ultimately means that - for savvy investors with large reserves of cash, at least - the opportunity exists to take advantage of the pain of others.

Leading global asset management company Schroders last week weighed in on the subject by making its own prediction of when it expected the commercial UK property market to "bottom out".

In a statement issued to investors, the UK fund manager announced a dramatic £2 billion cut to the value of its Schroder Exempt Property Unit Trust - marking a 12.5 per cent reduction on September's valuation and denoting what the firm equated to the trough of the current downturn.

Mark Callender, head of property research at Schroders, said that the investors should interpret the dramatic price cut as "a sign of how far we see the whole market falling before bottoming-out" and he predicted a flurry of resurgent buying activity in the new year.

While other valuers are expected to move more cautiously in reducing the price of their property portfolios, Schroders seems convinced that acting quickly will serve as reassurance to its investors that there is light at the end of the tunnel. The firm has repeatedly emphasised the overall buoyancy of the market given strong demand from occupiers across the retail, industrial and regional office property markets - singling out the M4 corridor as looking particularly auspicious.

Not everyone is convinced by Schroders' attempt to pre-emptively steady the boat, however. Many analysts point to the significantly-dented investor confidence that has arisen from widespread collapses of multibillion-pound property deals between August and October, not to mention the dramatic downward valuations of major players like British Land, Mapeley and now of course Schroders.

October's 1.9 per cent decline in capital values comes on the heels of a 1.6 per cent fall in September and effectively amounts to the sharpest drop since the property recession of 1990, painting a gloomy picture of Britain's £700 billion commercial property market.

And the City office market also looks particularly weak with concerns over excess supply continuing to gather pace. Here, the widespread impact of the global credit crunch is once again on display as major banks and financial institutions find themselves forced to downscale their loan books, necessitating
cutbacks across the board including in the expansion of their commercial property capital.

"We are increasingly vulnerable to alarm and despondency" was the ultimately forlorn assessment that Chris Turner, head of property at Thames River, gave investors.

In his latest report to shareholders, Mr Turner admitted that looming cuts to the value of the fund's assets could have a devastating cyclical impact on share prices. He warned that having already dipped on news of predicted capital value depreciations, stock prices could continue to tumble as constantly-updated Net
Asset Value figures paint an ever-bleaker picture of the market.

The fund's share value fell almost 20 per cent between April and October to its current level of 234p. Reflecting as this does the wider correction to capital asset values, such share price depreciations inevitably come hand-in-hand with lower yields. Crucially, however, while speculation-driven share prices look likely to fall further, yields have actually begun recovering from their June
low of 4.5 per cent.

And while the current 5.25 to 5.5 per cent average yields cited by the Investment Property Databank will do little to excite investors, they nonetheless serve as a reminder that profitability in commercial property remains buoyant - with falling demand for such securities merely reflecting concerns over the wider instability of the financial markets (that would be the credit crunch, again), and not any inherent doubts over the integrity of the sector.

So while doubts abound over Schroders' allegedly optimistic prediction of market stabilisation, it appears that the majority of investors see an altogether robust, if somewhat tumultuous, market in 2008.

"Ultimately, our central view is that long-term investor demand for commercial property remains healthy," research consultancy Capital Economics posited. "Nevertheless, once we emerge from the current malaise, more fluid investment markets mean that yields and capital values are likely to show much more short-term volatility than in the past."

Credit crisis - no end in sight?

The march away from credit

The Bank of England's latest warning over the far-reaching consequences of this summer's credit crunch has renewed fears that global financial systems are facing their biggest crisis in recent years.

Since August - when the US sub-prime mortgage market began to collapse and investors moved in their droves to shed high-risk portfolios - the world's money markets have faced an effective drying up of funds.

While America's low income mortgage holders were doubtless the first to feel the pinch, the effects of a global strain on credit have rippled around the world and the majority of UK consumers now also in one way or another find themselves affected by the credit crunch.

As recently as last week, five UK loan providers announced they were withdrawing their entire range of products - bolstering naysayers claims that the bottleneck will worsen before it gets better - and even among those able to secure a loan the rates have been driven up a crippling four per cent in just a matter of weeks.

Burgeoning interest rates have also taken a heavy toll on homeowners, with the British Bankers' Association revealing that the number of house purchase approvals fell a massive 27 per cent year-on-year in September, further isolating prospective homeowners from an increasingly unaffordable housing market.

And even major high-street lenders lack immunity from the squeeze - as shown by the run on Northern Rock two months ago - with the Bank of England now calling this the most severe challenge financial systems have faced for several decades.

"The speed, force and breadth with which these risks combined was not fully anticipated by the authorities or financial market participants," the Bank's half-yearly Financial Stability Review stated. "In consequence, confidence in the stability of the financial system, in the UK and internationally, has been dented."

You lend it, you bought it

Understanding why financial institutions are so jittery over the prospect of providing consumers and businesses the credit we all depend on - and in most cases are able to pay back - requires a brief overview of the practices and mechanisms that the world's money markets rely upon.

Rapid economic growth, strong corporate profitability and the expansion of personal wealth - all doubtless desirable trends - cannot occur without the overreaching spending power that easy access to credit affords us, whether we want to buy a home, take a much-needed vacation, or set up a multinational global corporation.

But when people start borrowing at unsustainable levels and when private equity funds and investment banks are allowed to resell those debts - which were never realistically going to be repaid in the first place - then you start getting into difficulties. And that's exactly what caused the US sub-prime crash that kicked off our current credit crisis.

The very thing that makes economies work so well - liquidity - also has the potential to be their downfall. And whereas in a more accountable financial system the buck would have stopped with the American sub-prime lenders who were issuing irresponsible loans to low-income families, under our current framework such lenders are frequently left unscathed.

Instead, investors who innocently tied up their money in complex portfolios - the precise contents of which they and even possibly the people selling them would have been unaware of - were the ones who footed the bill. That, understandably, spooked the investors, which led to an immediate drying up of funds and landed us firmly in our current credit-parched financial climate.

So because the lenders are now scared of lending they have duly backed away, raising their rates and adopting an altogether more conservative approach to issuing credit. But for the people on the other side of the equation - the low-income mortgage holders - scaling back is sadly less of viable option.

Mortgage defaults and the future of the credit crunch

The immediate impact of irresponsible lending paired with rising interest rates in the US inevitably and tragically hit the country's sub-prime mortgage holders the hardest, with the White House now estimating a total of 500,000 homeowners are set to default on their mortgage.

That disastrous collapse of low-end property is expected to have an immediate cost of $71 billion (£34 billion) on the economy, with a further $32 billion set to be wiped off the value of neighbouring homes and - some analysts warn - potentially ushering in a nation-wide crash in the housing market.

Whether or not the UK should expect disaster on a similar scale in unclear, but one thing all analysts now agree on is that British consumers' exposure to the risk of such a credit crunch depends as much on the practices abroad as it does at home. The fact that UK mortgage lenders are traditionally more cautious is essentially meaningless in staving off a similar crisis in the future.

So, where from here? Sure enough murmurings of a US-style property slowdown have already begun surfacing on our shores. UK home repossessions rose for the third time in a row in Q3 and the Council of Mortgage Lenders has warned they will soar to 30,000 next year and then 45,000 in 2008.

The Association of Business Recovery Professionals also recently cautioned that the number of people being forced by creditors into taking out informal debt management plans is rising steadily, belying a recent report which suggested that the number of insolvencies was actually falling.

Whether or not the crunch will have a concomitant effect on wider economic growth and jobs is at this stage anyone's guess, but no serious observers are under any illusions that stubbornly-high interest rates and a drying up of liquid money can be good for the economy.

And while recent reform to US mortgage lending legislation serves as one small glimmer of hope that irresponsible lending and its devastating consequences may be a thing of the past, many will question whether the human vices that gave rise to this situation can ever be fully eradicated from insufferable global money markets.

"Sustained benign economic conditions and previously buoyant market liquidity appear to have fostered complacency among some investors, undermining standards of due diligence," the Bank of England's Financial Stability Review posited. And that means we all got greedy.

UK property market: a hard landing?

Fears are beginning to grow that the UK property market could follow its counterpart across the Atlantic into a dramatic downturn that could threaten the livelihoods of householders and investors.

With prices having been artificially buoyed by the runaway wages in the City, overvaluation of property has become a norm in London and other areas with a strong financial sector.

But one clear effect of the credit crunch spawned by the collapse of the US sub-prime mortgage sector is likely to be that the established institution of massive bonuses for financial workers is set to be much toned down.

A study by the Centre for Economics and Business Research (CEBR) found that the yearly bonus for financial services workers will be around 16 per cent down on last year at a total of £7.4 billion.

Although the payout in 2006 was a record of £8.8 billion, the drop is expected to lead to a lower demand for high-end property purchases.

When this drop is coupled with a predicted 6,500 job losses in the square mile, it may come as no surprise that the CEBR predicts that the problems in Britain's premier financial centre will lead to a cooling of the property market in the capital.

Estate agents Knight Frank found that the former strength of the market is struggling to hold up price growth even in the most exclusive areas of Mayfair, Belgravia and Knightbridge.

While year-on-year growth in these districts is still up 36.5 per cent, the squeeze on the world's financial markets has prompted a rapid slowdown to a price increase of just 1.2 per cent in September.

This continued the recent trend of smaller and smaller rises, progressing from 3.9 per cent in July, to 2.1 per cent in August and then hitting the most recent price rise level.

Unfortunately for the rest of the country, the London markets will not be alone in feeling the impact of the credit crisis as buyers' faith in the ever-rising price of property has been shaken.

Paul Airey, a chartered surveyor in Sunderland, told the Guardian of his fears that the wider population may have come to the belief that the entire property market is over-valued.

"There is definite cooling, I think the market is over," he said. "Prices have already fallen by about 2-3 per cent in the last quarter and I think they will fall by another 5-8 per cent before the year end as soon as the realisation sets in with vendors that they are going to have to decrease their prices to get a sale.

"By Christmas vendors will see that they have to be more realistic."

But Mr Airey did not place all the blame on the sub-prime scandal in America that sent tremors around the world, as higher interest rates and the introduction of home information packs "have all reduced demand".

Nevertheless, the shocking speed and largely unpredicted nature of the US crash has seen UK property commentators take a more critical look at the markets closer to home.

Unfortunately, the similarities are striking.

House prices are incredibly high due to sustained demand and a lack of new build coming to the market, while household savings have dwindled to just 3.1 per cent of disposable income as debt has soared to account for seven per cent.

Indeed conditions may be even worse in the UK than they were in the US before the property market seized up.

The Financial Times highlighted that house prices have risen faster in the UK than in America over the past ten years - 144 per cent to 127 per cent, according to the FT and Case-Schiller indexes.

In addition, total household debt is significantly greater in the UK, at 164 per cent of the nation's gross domestic product at the end of 2006 compared to 140 per cent in the US.

"If US households are sinking in debt, UK households seem to be drowning in it," said Financial Times market commentator Martin Wolf.

"All this strongly suggests the possibility of house price weakness and a sharp reduction in the household financial deficit.... this would seem a recipe for a slowdown, possibly even a recession."

Although a correction in the markets is difficult to predict, Nationwide's estimate that house prices in the UK rose by less than one percent in August and Halifax's report claiming September prices fell by 0.6 per cent could be indicative of a wider price dip around the corner.

Inevitably, this is leading to reduced mortgage activities and purchases as buyers look to conserve their finances till more certain times.

"Potential house buyers have become far more cautious as they wait and see what effect interest rate rises will have on household finances," a spokesperson for the Royal Institution of Chartered Surveyors (Rics) said.

"Affordability is at its most stretched in over a decade and many will worry that rising mortgage repayments will prove a step to far."

For many, this threshold has already been crossed as Rics reported that repossessions rose by nearly a third in the second quarter of 2007 - echoing the problems that occurred in the US.

By 2008, the yearly tally of repossessions in expected to have reached 45,000, with many of these owners having been buy-to-let investors who have found themselves unable to keep up with rising mortgage costs.

But whether the British house of cards will tumble may depend on the sub-prime mortgage sector, which played a major part in the US downturn.

Lenders supplying these household loans to people with bad credit are currently responsible for 70 per cent of all home repossessions, according to the BBC.

A survey of 7,000 court hearings by Panorama and Five Live uncovered the vastly disproportionate risks involved in sub-prime for lenders, but the mortgages continue to be sold in abundance.

Most worryingly for the UK property sector is that the foreclosure rate for US sub-prime loans was just 55 per cent, suggesting that the sector is being managed even more recklessly than in America, despite the criticism levelled at firms there.

Critics suggested that the Financial Services Agency (FSA) has been a "light touch" on sub-prime and self-certification lenders in the City and called for greater restrictions to be imposed.

But the FSA told the BBC that its July review of sub-prime mortgage lenders "found weaknesses in responsible lending practices and in firms' assessments of a consumer's ability to afford a mortgage" and said: "We will take action against firms that do not adhere to our rules or treat their customers fairly."

But while the threat of a copy-cat crash looms in the UK sub-prime market, it is unlikely that confidence will return among residential property buyers.

Similarly, investors in commercial property will likely be wary of suffering the fallout of a further crash in the market.

Already the outside influences of overvaluation of property and the global credit crunch have impacted on the commercial sector, with funds dropping for the first time in 15 years this September.

A boom in investment over the past year and a half has come to an abrupt halt due to overvaluation fears and a downturn.

"The last time UK commercial property saw a negative total return was in September 1992," Philip Nell, head of UK retail property funds at Morley, told the Financial Times.

"Values have been affected pretty much across the board."

But it is not just a slide in property values that is threatening the commercial market, as Rics has highlighted the threat of rising yields which reduce total returns to just three per cent for 2007 and even completely wipe out all rental income the following year, according to the group's predictions.

Worries over the future of the sector are constraining purchasing or new rental deals in a similar way to the residential market as few are willing to get their fingers burnt by taking an unnecessary risk.

Only 85 commercial property deals were done in the month to October 3rd, down from an average of 125 a month over the past six months, according to the Rics database.

And this has dropped further at the start of this month with only 30 deals being completed in the first two weeks of October.

British Land was clear in placing the blame for this on the worldwide credit difficulties, saying it had forced it to abandon the sale of Meadowhall, a £1.7 billion Sheffield shopping centre.

Sealing a deal proved impossible for any prospective buyers as investors were unable to find enough financing from banks and other investment groups, Britain's second largest property trust claimed.

But an additional threat for commercial firms would be a reduction in consumer spending if a recession kicks in.

With companies already tightening their belts as customers do the same, high-priced rental property may prove less economically viable for some firms and they may find themselves forced to downsize their operations – meaning larger properties being left empty and rental incomes falling massively.

Rics issued a warning that this was not all too distant a possibility, as senior economist at the institution Oliver Gilmartin said: "We have probably reached a peak in terms of office rental growth and we will see the effects from banks laying workers off, which haven't come into the numbers yet."

With few analysts predicting the UK will ride out the storm, however, it is worth remembering that the resilience of British property has been regularly questioned over recent years - and has continued to defy predictions of a downturn.

But with so much up against the market, could the bubble really be starting to burst at last?

The 2007 credit crisis - how far will it spread to the real economy?

How bad is it?

Worries of a stock market collapse following the US credit crisis have seemingly been allayed by a recent rally due to solid oil prices and positive corporate news.

Positive, that is, apart from those which the credit crunch may leave with a multi-billion-pound hole in their pockets - the banks.

Major banks in the City are now only lending to each other at the highest rate for nearly nine years as they protect their cash piles while the full extent of the US home loans crisis remains unknown.

Uncertainty over where exactly the packages of debt from the US sub-prime market have been sent and how much it totals has made banks in all financial centres jumpy - especially over suggestions there could be a black hole as big as £250 billion hidden in the balance sheets worldwide.

However, this reluctance to share the wealth between banks is reportedly harming liquidity and may bring about an economic slowdown next year.

An unnamed banker told the Guardian: "Everyone is concerned, everyone wants to see liquidity restored to the market and everyone has a role to play in that - issuers, central banks - in terms of doing smart things."

While the US Federal Reserve and the European Central Bank have released billions to keep the system flowing, the Bank of England (BoE) has refused to cut interest rates to aid the City as it continues to wage war against inflation.

Mervyn King, the governor of the BoE, defended its position in a letter to the chairman of the influential Treasury Select Committee which emerged today (12/09).

"The current turmoil, which has at its heart the earlier under-pricing of risk, has disturbed the unusual serenity of recent years, but, managed properly, it should not threaten our long-term economic stability," Mr King said.

"The key objectives remain, first, the continuous pursuit of the inflation target to maintain economic stability and second, ensuring that the financial system continues to function effectively, including the proper pricing of risk."

But he warned: "'If risk continues to be under-priced, the next period of turmoil will be on an even bigger scale."

This view is supported by economists at the Levy Economics Institute at Bard College, New York, who last week published a study titled 'Cracks in the Foundations of Growth' which demonstrated that the current crisis could pose a danger to US economic growth.

According to the study, a decline is inevitable even if bail-outs from the banks go continue.

But the experts suggested the best way to avoid a full recession would be the introduction of a debt relief programme in the US to help the estimated 2.5 million people at risk of defaulting on their mortgage payments and continuing the downward economic spiral.

"An effective job-creation method could be some form of employer-of-last-resort programme that offers government jobs to all workers who ask for them," they suggested.

Even if a recession does not come to pass, a bail-out of the financial system on some scale "will probably become unavoidable", according to analyst Wolfgang Munchau of the Financial Times.

But he suggested this would not be such terrible news as "it should be accompanied with structural policy changes" - including a tightening on lending regulations and a re-evaluation of the monetary policies of central banks - which should help prevent a repeat of the mistakes which led to this credit crunch.

Effects on the housing market

It seems difficult, however, to have much sympathy for banks that have been placed in a somewhat nervous position after many were involved in causing the messy situation in the first place.

But the spiralling effects on other sectors of the economy seem particularly unfair.

Although sub-prime mortgages in the UK are now under scrutiny, they have had little impact on the overall housing market.

But the collapse of the US sub-prime market has already been so influential as to force notoriously resilient London house prices into their first fall for a year.

A report from real estate website Rightmove showed a 0.1 per cent slip in the average asking price for homes the capital to nearly £395,000 in August.

East London's Tower Hamlets had previously seen rapid price growth as it will host part of the 2012 Olympic Games, but it experienced the biggest monthly decline of 6.9 per cent.

And even properties in the priciest borough, Kensington and Chelsea, fell one per cent to an average of just under £1,450,000 as the area's bankers felt the looming threat of much smaller bonuses come the end of the year.

Across England and Wales, four out of ten regions experienced a price drop in August, according to Rightmove's research, as sellers moderated their demands in light of the recent financial unrest.

And with the BoE holding rates high, or even contemplating a further rise to six per cent, there will likely be fewer people looking to enter the market and prices will drop further.

However, the Bank's monthly assessment of mortgage rates in August noted that lenders had not yet matched the 1.25 per cent rise in rates since July 2006.

New fixed rate mortgages were found to rise only 0.59 percentage points to 5.58 per cent over the period, suggesting that borrowers may still find good deals - but also that the pinch may be on its way.

Despite these agreeable mortgage terms, such has been the gloom cast over the market that buyers have been scared away, choosing to wait out the storm in the hope of finding cheaper properties on the other side.

According to the Royal Institution of Chartered Surveyors (Rics), new buyer inquiries fell away rapidly in July to a level not seen since August 2004.

"The combination of softening demand and supply is causing market conditions to weaken further," said Jeremy Leaf, spokesman for the industry group.

"Buyer activity has pulled back a little over fears that we may have seen the top of the market."

Further concerns have been raised by the introduction of home information packs to the market, but Rics noted that demand continues to be fuelled by a shortfall in available property which may give prices more resilience than buyer confidence would suggest.

Unfortunately, the same cannot be said for the American housing market where prices were already much cheaper and have been pushed lower still by the spate of repossessions following the sub-prime scandal.

The Standard and Poor's housing index for the US reported a 3.2 per cent fall in home prices over the previous quarter - which amounted to the largest drop since that measure was first recorded in 1987.

And the index's committee chairman, David Blitzer, could not even offer a silver lining to the report, saying: "We still don't see anything that looks like a clear bottom...we're still headed down."

Effects on the wider economy

Even though the US housing market's troubles are seemingly deeper than those back across the Atlantic, the credit crunch has shown that there is little refuge from today's worldwide economy.

The slight downturn already experienced in the UK property markets have undoubtedly been affected by the events in America, while the pressures on the financial sector may see City bonuses dry up and even lead to job cuts.

According to the Guardian, some investment banks have stalled all hiring of new staff in middle and back office areas as a precaution, while the loss of bonuses would seriously dilute the exceptional house price growth recently experienced in the capital.

But a downturn in the City could even have implications on government spending, as it has become such a large source of tax revenue for the Treasury and the financial uncertainty comes as Alistair Darling, the chancellor, is still pondering the details of his comprehensive spending review.

John Hawksworth, chief economist at leading City firm PricewaterhouseCoopers, told the Guardian that despite recent record tax takings, "there may be some concern that the current budget still appears to be slightly in deficit" and that the problems in the finance world may lead to reduced revenue from the sector, threatening the public purse further.

With such wide-ranging potential implications of the sub-prime crash and still so much uncertainty over which areas will be hardest hit, the predictions of the experts at the Levy Economics Institute seem more reasonable.

And this is not even having taken into account the threat that US consumer spending could dry up if the country's housing market downturn continues apace.

Even America's largest mortgage lender is concerned that an economic recession may be around the corner, with Angelo Mozilo, chief executive of Countrywide Financial Corp, saying the current situation is "one of the greatest panics I have ever seen."

And he added that the general public are likely to be just as panicky as those in the financial sectors.

"I can't believe ... that this doesn't have a material effect ... on the psyches of the American people and eventually on their wallet."

This has put added pressure on the US president, George W. Bush, to take drastic action to restore consumer confidence and not just trust the Federal Reserve to prop up the financial markets.

But with the UK and the rest of the world seemingly intertwined with the combusting American economy, it may be that Dubya's actions, or lack of them, have large-scale economic implications.

US credit squeeze threatens international liquidity

Interest rate rises to curb inflation have been putting the squeeze on debtors in the US just as in the UK, but a domino effect from America may affect the options for investors around the world.

To begin with, the collapse of the sub-prime mortgage market in the US was prompted by recent rises in interest rates. These forced up payments for mortgage holders which affected the most vulnerable sector of society the worst.

While higher interest rates always have a more striking effect on the lower-earning sectors of society, the problem was exacerbated in the US by the financial services industry offering this at-risk group tailored mortgage deals.

These sub-prime mortgages often let people balance the loan against their home's future price growth rather than be guaranteed by a risk assessed through income.

However, higher interest rates coupled with falling property prices, which were creating negative equity in some areas, meant large numbers of people had to default on their mortgage payments and risk losing their home.

Economics editor for the Guardian, Larry Elliott suggested that the greater use of sub-prime mortgages could be seen as a heroic attempt by lenders to get all parts of society into the property market or, more likely in his view, an attempt by "a bunch of snake-oil salesmen, hucksters and crooks" to gain more commission fees and pick up cheap property from foreclosures.

This view is shared in hindsight by Ben Bernanke, chairman of the US Federal Reserve, who declared lenders had engaged in an "outright fraud" and promised to toughen regulations to clamp down on "unfair or deceptive" mortgage deals.

The collapse of this system could cost the US mortgage industry £50 billion and the fallout has seen higher yields in the bond market.

This could lead to less flexibility or liquidity in the economic markets as money will be more likely to stay in one place as it has become harder to borrow money cheaply, which could reduce the opportunities for property trusts to raise capital to invest and so reduce market activity leading to prices falling.

But Mervyn King, the governor of the Bank of England, insisted recently that there would not be an international crisis following the sub-prime lending fiasco in the US, saying: "I don't think there is much evidence of major damage to loan performance in other markets."

However, Mr King's deputy Sir John Gieve said that as ever there were "uncertainties" in how the market would react to changes abroad.

Nevertheless, the sub-prime collapse was also seen as a warning to the British mortgage industry to check its practices.

Incoming Financial Services Authority chief executive Hector Sants cautioned banks and financial institutions to take care to protect themselves and their customers from an economic downturn due to the US sub-prime collapse.

In addition, Mr Sant's predecessor John Tiner warned in his final speech in the role that there was the possibility for a similar over-selling of sub-prime mortgages as "risk has been under-priced".

Such warnings may possibly be coming too late, however, as recent figures from MoneyExpert.com showed more than 7,716 loan repayments are skipped every day seeing 1,389,000 repayments missed in the last six months alone.

"This is yet another warning of real financial distress and a sign that finances are being stretched to the limit by recent interest rate rises," said Sean Gardner, chief executive of MoneyExpert.

And finances are set to be stretched even tighter as reports suggest interest rates could rise further to 6.25 per cent if inflation is to be brought down to the government's target of two per cent.

Insuring against environmental liabilities: the polluter pays, but how?

Companies and property owners are facing the possibility of being hit by bills for their effect on the environment, with a European Union directive set to be implemented into UK law.

The phasing in of the Environmental Liability Directive (ELD) will enshrine the 'polluter pays' principle in law, which extends companies' liabilities for the clean-up costs for causing environmental damage.

The liability for firms under the directive is to "remediate" the damaged environment, which in the case of protected species, natural habitats and water could extend to covering the cost of returning the environment to the condition it was before the damage occurred.

But if the damage is so extensive that the site cannot be returned to its baseline condition, companies can be required to create a similar site to replace the original resource which cannot be fully restored.

So if a damaged resource can only be recovered to 80 per cent of its original condition, companies will have to provide the equivalent of the 20 per cent shortfall elsewhere.

Commenting last year on the expected impact of the ELD, Karl Russek, a senior vice president for global insurance specialist Ace Group, told the Insurance Journal that companies "should not simply rely on their existing liability covers to provide the protection they need in the event of environmental damage clean up operations".

Without updating to a more comprehensive plan, firms may leave themselves exposed to "significant losses", he added.

But while firms are understandably keen to do this, insurers are reportedly finding it difficult to create reliable policies as the government is yet to enter the additional liabilities into written law and is not expected to until April next year.

Without the firm descriptions of liability to work with, insurers are not willing to lay down concrete insurance terms - but the ELD entered effect on April 30th.

A spokesperson for the British Insurance Brokers' Association said: "We are in limbo. Additional liabilities are out there. Until this is made into statute, that is where we will remain."

Further anger at the situation came from Bob Martin, director of risk management firm Aon's environmental consulting and solutions unit.

"It's time to wake up," he said. "The government has had three years to act on this. It hasn't been given the profile it deserves."

But Mr Martin put some blame on insurers who he said have few environmental specialists which exacerbates the problem.

"The chances that a regional broker understands environmental insurance liability cover - let alone the implications of the ELD - are remote," he said.

Aon believes that paying out for environmental damage presents the largest liability for companies and should view it as a core part of their risk management, while property owners should also remain aware of their responsibilities, for example with waste management or checking materials on their premises are safely stored.

UK insurers first quarter results show the health of the market

With the first quarter results in for many of the UK's insurers, the state of play for the next year seems to be continued growth as the sector moves out of a worldwide period of decline.

The lean years of low income in the early years of the decade have been cast aside by most insurance groups, with only a few posting disappointing international results.

AIG, the world's biggest insurer, posted first quarter worldwide income results of £2.08 billion which is up from £1.6 billion for the same period last year.

This strong international growth was mimicked by Allianz (formerly Allianz Cornhill), Europe's largest insurer, who posted net profits of £2.2 billion, up from £1.2 billion due to large asset sales, however revenue slightly declined by one per cent to £19.9 billion.

Such strong growth from larger insurers continues the insurance market trend that has reined since 2005, when the corner was turned in countering declining incomes.

However, competition for market share in the UK remains high and is set to increase as HSBC recently announced it will be boosting its presence in the general insurance sector through a soon-to-be-completed deal with the country's largest insurer Aviva.

Although that makes conditions more difficult, that challenge remains in the future and analysts have been focusing on the certainties of past performance.

The first quarter of 2007 saw net incomes soar for big players like Allianz (by 82.1 per cent) as well as groups with a smaller market presence like Zurich, which still enjoyed substantial growth of 71 per cent in net income across the group to £700 million.

This came on the back, however, of falling revenues for Zurich in the UK and Ireland – a trend that has continued from earlier results – but the volume of UK insurance customers serviced by the group managed to remain stable, acting as a buffer against a series of recent declines.

Remarking on the results of his firm, Zurich's chief executive officer James J Schiro said that the increase in profits was down to the company's "rigorous approach to operational excellence" which included streamlining the corporate structure, improving tax efficiency and changes to the management of capital.

Structural changes were also on the agenda for Prudential, who, living up to their name, moved to reduce their presence in less profitable market areas, as well as cutting costs in order to turn around its UK business.

For the last two years, Prudential's sales growth in the UK has been behind that of other insurers, with analysts blaming stiff competition coupled with a weak distribution network which hampered efforts to boost sales.

But following the changes in strategy in this first sector of the year, Prudential chief executive Mark Tucker said that the results had so far been encouraging.

"Many initiatives are in place that are already providing benefits," he told reporters in a conference call in April. We're competing on terms that are economically sustainable."

However, Prudential's sharp decline in UK sales by 23 per cent on the year to £183 million still does not make for a wholly positive reading, even if last year's one-off £66 million bulk annuity deal with Royal London contributed to this drop.

At least the HSBC deal with Aviva has quietened rumours that Prudential could be a target of a take-over bid from Europe's biggest bank, which may allow it to focus on improving its UK performance, while its planned deal to sell health insurance through Boots may provide an overdue boost in UK customer numbers.

But with overseas performance still strong, Prudential may be able to continue to offset its UK operation for a while longer and continue its efforts to create boost sales.

In fact, by biting the bullet early, Prudential may be ahead of the game as some industry figures believe that streamlining efforts and modernisation of methods is set to be necessary across the whole of the UK insurance market.

Lloyd's chief executive Richard Ward told the London Insurance Day Summit in May: "It is time that we in the London market accept that the drive for efficiency is not something that is being done to us – it is something that has to be done by us."

According to Mr Ward, comparisons with other financial sectors show up the failings of the insurance industry in terms of customer service and efficiency.

However, he added that previous improvements, such as the success in meeting contract certainty targets, should be the inspiration for more changes in the London market if it is to encourage more business.

Not all insurers are finding the market so tough, however, with Aviva still striding ahead as the UK market leader. Total UK sales at the insurer were up nine per cent to £3.5 billion, which follows last year's first quarter growth of 34 per cent.

This has been built on the successful sales figures in life insurance, which have grown by nearly 50 per cent in the last two years, with new business up 12 per cent to £86 million.

With such progressive figures to boast, Aviva seems to be weathering the recovering UK market better than most, but group finance director Andrew Moss stressed that the company was like other insurers working towards greater efficiency.

"Since the cost-saving announcements in December and September last year, our UK life business has delivered estimated annual cost savings of £68 million and we remain on track to deliver against our overall programme," he said.

These savings were in addition to the strong contributions from bonds and investments, which saw sales growth of 28 per cent and 48 per cent respectively.

With stand-out figures like these, Aviva looks in good stead for the rest of the year - especially with that intriguing HSBC deal on the cards.

Background to Statutory Financial Services Regulation

The Financial Services Authority became the regulating body for the insurance industry on 14 January 2005. Regulation is statutory i.e. it is illegal to deal in general insurance without being authorized to do so.

Broadly, any company that deals in general insurance by way of business, however small a part of the business it might be, must be regulated and anyone who advises on, sells or administers general insurance must be proven to be competent to do so.

The Financial Services and Markets Act 2000 gave the FSA four statutory objectives.

• Market confidence: maintaining confidence in the financial system
• Public awareness: promoting public understanding of the financial system
• Consumer protection: securing the appropriate degree of protection for consumers
• The reduction of financial crime: reducing the extent to which it is possible for a business to be used for a purpose connected with financial crime

Regulatory Status Options

The FSA has Rules to meet these objectives and also the requirements of The Insurance Mediation Directive of 2002. Statutory regulation gives companies who deal in insurance, either as primary or secondary intermediaries, four options regarding their regulatory status. They can choose:

1. Full Authorization
   
2. Appointed Representative
3. Appointed Introducer
4. Opt Out Of Insurance Mediation

The third option is very limited and the fourth option could mean that a property manager, for example, is not able to offer a full service if they cannot offer to administrate the insurance.

Choosing to be an Appointed Representative does not bring with it a ‘get out of jail free card’. Being an Appointed Representative brings with it responsibilities. The company has to decide who they wish to be their principal or principals and they have to agree to accept the company. The company may have to have an Approved Person [if the company has staff who deals with customers regarding insurance]. The company will have to enter into an agreement with the principal and if there is more than one the principals will have to enter into a multi principal agreement and agree between themselves on a ‘lead’ principal.

There are other things to take into consideration; options regarding obtaining quotations are limited as they can only be obtained through the market available to the principal. Meeting compliance requirements and evidencing that they are met inevitably increases the workload, for many businesses the procedures are already in place but not formally recorded. This includes training staff and recording their continuing professional development. The Appointed Representative has responsibilities to the principal and must accept that the businesses are linked by this relationship. The Appointed Representative cannot jeopardise the principal’s regulatory position by not actively ensuring the compliance requirements are met.

However, on the plus side, the principal does the ‘legwork’, keeping up with regulation and passing on the information and helping to put procedures in place. The Appointed Representative benefits from the products and services available and the customer benefits from enhanced customer service.

Regulatory Status Relationships

There are four relationships where the application of compliance has to be considered by a fully authorized firm:

• Directly to the customer
• Through other authorized intermediaries
• Through appointed representatives
• Through introducers

When a fully authorised intermediary sells directly to the customer they are responsible for the compliance and will have procedures in place accordingly.

If a customer is ‘introduced’ they are, in effect, also a direct customer so again it is straightforward.

Introducing on a ‘casual’ basis is not a regulated activity, but a formal arrangement involving remuneration in any form requires a business arrangement to be in place and the relationship notifying to the FSA. Firms cannot mix and match and be Appointed Representatives for one principal and an Introducer to another.

Fully authorised intermediaries can arrange policies for customers through other fully authorised intermediaries and be supplied with the policy documentation necessary e.g. policy summaries, certificates and schedules, but the status disclosures, terms of business and Demands and Needs would be their own i.e. the customer facing party delivers the compliance. The insurance provider must ensure that the intermediary who is the ‘customer facing party’ is provided with all that is needed in the way of information and documentation that is necessary for them to meet their regulatory obligations.

Similarly an Appointed Representative has to deliver the compliance, but the principal is ultimately responsible for it and certainly responsible if it is not delivered.

A principal has responsibilities where Appointed Representatives are concerned. They must ensure that an Appointed Representative is ‘fit and proper’ to deal with customers and the business is viable. There must be checks and resources in place to monitor that the Appointed Representatives are compliant and remain so. The FSA have to be informed of any changes to their details or activities.

Similarly an Appointed Representative has responsibilities. They must understand and comply with the FSA rules. They must be prepared to allow the principal to have access to their premises, records and staff and provide all the assistance the principal needs to fulfil its responsibilities. They must abide by the written contract that sets out the rights and duties of each party under that FSA regulations.

Appointed Representatives are not allowed to hold client money but property managers can collect service fees that includes insurance premium and hold it in a ‘client account’ which is a statutory account that complies with the ‘CASS’ [client’s assets] Rule 5.3. This type of account ensures the client’s money is protected. Royal Institute of Chartered Surveyors members already met this requirement so the FSA agreed that property managers who met the RICS standard are not required to have another account. Due to the protection offered by a statutory account the FSA will allow the ‘co mingling’ of insurance money with other ‘client money’ if it is in this type of account.

The Principal also has a responsibility to ensure that the client is protected so they are required to ‘cover’ the premium it anticipates the property manager will have collected to pay forthcoming premiums. Regular notification of what has been collected is required so that it can be reconciled against the estimation.

Risk transfer is the insurance company accepting that payment to their agent is payment to them, again protecting the customer. Some principals are fortunate in securing confirmation from their insurers that Risk Transfer can be ‘cascaded’ down to Appointed Representatives’.

This is another benefit of having a Principal who looks after the interests of their Appointed Representatives as this means their customers money is protected on both counts.

As statutory regulation has been in place for more than two years intermediaries should have their compliance position in place but it is possible to change if the one you chose originally does not suit your requirements. If you are planning a new business which involves insurance mediation research the options thoroughly and decide which one will suit your business.

European property opens new opportunities for investors

While the UK property market continues to perform strongly, it is also seeing a period of uncertainty due to interest rate hikes to 5.5 per cent and the recent debacle over the introduction of Home Information Packs, which have both put a dampener on the residential market.

Although high demand for property in Britain may well keep prices ticking over, investors unwilling to take a risk or those looking for the highest return on their investment are seeing these push factors coupled with tempting opportunities in Europe.

Property prices on the continent continued their upward surge last year, according to the Pan-European property index from Investment Property Databank. Clearly good news for current property investors, but coming on the back of similar growth in the two previous years it suggests there could be substance to suggestions that the Euro market will offer opportunities into the future.

Although the UK was among the top six performers in terms of total returns, it was not alone in performing well and was joined at the top of the index by Ireland, France, Denmark, Sweden and the Netherlands, while Italy, Portugal and Norway showed good growth in residential rental returns.

But commercial property too has been enjoying a continental-flavoured boom, clearly shown by the recent spate of big-money deals. The start of the year saw the Coeur Defense office complex near Paris briefly top the rankings as Europe's biggest ever commercial property deal after it was sold for $2.8 billion (£1.42 billion).

Although this was quickly eclipsed by the $3.8 billion (£1.92 billion) HSBC headquarters sale - which was helped by London's unique place in the market - it suggests that commercial property has entered a highly attractive period for investors.

This was confirmed by more results from the Investment Property Databank in May which found that the value of investment property including retail and office space in western Europe had grown by 7.8 per cent, with Ireland performing outstandingly with growth above 20 per cent.

Reasons for this success include the strong performance of the Euro zone against the dollar and big companies selling off properties due to shareholder pressure.

French supermarket giant Carrefour has been under pressure to offload some of its portfolio, while German insurer Allianz alone has cut loose $4.1 billion of property, including the European Central Bank building. Governments too have been feeling the squeeze and have sold off property to combat cash flow issues.

The upshot of these sales is that large numbers of investment opportunities have opened up across Europe in recent months, which has boosted commercial property activity.

But further to this, new investment has been flowing into Europe through Real Estate Investment Trusts (Reits) which have been recently launched in Germany and France, as well as Britain.

The relative youth of these trusts means there is substantial room for growth, with fund manager Fidelity International predicting by 2011 there will be a 70 per cent increase in the number of properties held under schemes like these, in comparison to the 2005 level.

But what is the best country in which to look for Reits investments? For Steve Buller, manager of the Fidelity Global Property Fund, the answer has to be Germany.

He told a recent conference: "Germany holds particular interest at the moment. It is the third largest economy in the world but one of the least securitised property markets.

"Although it has the largest bank of property in Europe it currently has less than 0.5 per cent of commercial buildings owned by Reit-like structures."

Germany's office sector is made more attractive, Mr Buller added, due to the low numbers of new offices being built, coupled with improving take up rates of those on the market, which is boosting potential yields. But if Germany is seen by analysts as a key opportunity in terms of commercial property, there are also those suggesting that it looks no less inviting for residential investors.

According to Dominic Farrell of Jet-to-Let magazine, Germany remains a "sleeping giant" as residential property even in the capital Berlin is very cheap in comparison to other European cities. Large apartments in some of the trendier areas of Berlin can go for just £110,000 – or around £1,500 per square metre, according to the magazine.

For UK investors more used to London prices of £15,000 per square metre, such low initial costs are very attractive – especially when offset against rental income. And with around 60 per cent of Germans currently renting, there is a big market to which to offer a let – prompting the editor of Property Investor News magazine Richard Bowser to tell Jet-to-Let that "residential property values in the medium to long term are likely to go only one way."

However, Germany is not the only European country being touted as a ripe investment opportunity.

Emerging markets like Bulgaria and Cyprus may pose more risks for the careless investor, but they can also offer lucrative returns. Bulgaria's improving transport links and its growth as a tourist destination has seen investors flock to snap up property at bargain prices. These opportunists are likely to see a return on their decisiveness, according to Irini Tzortzoglou, the head of retail banking at Piraeus Bank in London.

"As the market matures, prices are rising to reflect the increased price of land and improved specification of the properties, therefore we are seeing higher selling prices," she said.

Cyprus meanwhile is also seeing prices rise due to its booming tourist industry and improving connections due to the major upgrades taking place at Larnaca and Paphos airports.

But despite the opportunities available on the continent, one former European investment favourite is not faring so well. Over-development in Spain has led to falling property values in many areas, while government plans for community projects have been exploited by some developers - resulting in some 20,000 properties being reclaimed on the Costa Blanca and the Costa del Azahar.

Although some analysts suggest parts of the Costa del Sol still offer attractive opportunities, property owners are also facing crackdowns on unlicensed building work and undeclared rental earnings, adding a further reason why investors are less inclined to turn to the Spanish market.

However, with a substantial expatriate community and more amenities already in place than some emerging markets, Spain may still attract those looking to invest in a second home or cater purely to holidaymakers.