A UK research company’s data that is under attack for being sketchy and out of date as UK investors see bricks-and-mortar assets crumble, has been strongly defended by its founding director.

Investment Property Databank, a company that issues indices on UK and foreign commercial property returns, used in the expanding property derivatives market and by fund management companies, hit back at claims that its data was a poor guide to the UK commercial property market.

Heartwood, a UK wealth planning and management business, says retail investors bought property funds in 2007 at what has been an inappropriate time, relying on IPD data when the market was already cooling fast.

“It [property] is an illiquid asset class and its performance can only be measured on the basis of market valuations made and anyone using such an index should be aware of that fact,” Ian Cullen, founding director of IPD, told WealthBriefing.

IPD bases its indices from the monthly, quarterly and annual figures that independent valuers obtain from all the properties that are held in the universe of funds that IPD tracks, Mr Cullen said. On the IPD’s UK All Monthly Total Return Index, for example, at the end of December last year, these funds held £51 billion ($101.14 billion) of assets, hardly a small sample, IPD said.

“Every single property fund must be revalued to reflect its full market value and we collect all that data and add it to all the cash-flows that are then used to compute returns for the market,” Mr Cullen said.

Recent data has shown the UK commercial property market has fallen sharply. Monthly figures showed that total returns on the UK All Property index were -1.6 per cent in January, although not as weak as the -3.7 per cent negative total return in December 2007.

Heartwood said IPD’s figures were compiled by “surveyors as a desktop sampling exercise on a limited number of properties without actual transaction data”. In response, Mr Cullen said no such random sampling of property funds’ assets goes on. Instead, all the assets of a property fund will be valued on their market value.

Heartwood argues that share price indices are based on live transactions and discount future trends, in contrast to IPD figures. It points out that the FTSE all-share real estate index fell by 19.06 per cent over the first eight months of 2007, while the IPD UK All Property Total Return Index rose 4.59 per cent over the same period.

“It is disappointing that investor information on the sector is still so tied to the IPD Index, which has been exposed in recent times to be flawed. We believe that the commercial property sector would benefit from adopting a more market-based yardstick to avoid the type of information lag that has affected so many retail investors,” David Lough, chief executive of Heartwood, said in a statement.