House prices are roaring ahead, according to Halifax, which reported a price rise of 1.1% in January alone and a gain of 7.3% over the year. Compare that to the paltry 1% or 2% most savers are earning on their deposits and, over the past 12 months, it's evident that property has been the better investment.
Yet, until recently, investors with just small sums have not been able to play the market. But an innovative scheme from a company backed by one of the world's biggest private equity firms is allowing investors to obtain the same return as the Halifax house price index, with a minimum pounds 1,000 - and with the returns free of tax.
The scheme is controversial. Some financial advisers warn investors are buying when house prices are already very high. Others argue that housing should be a social need, not an investment plaything, and that as the scheme lends largely to buy-to-let landlords (see box), it is intensifying the plight of first-time buyers priced out of the market.
It is called Housa (a mixture of "house" and "Isa") and is run by Castle Trust, launched in 2012 backed with pounds 65m from giant US private equity firm JC Flowers. It is offering three variants on the Halifax index. First, there is the out-and-out growth option, which promises 1.5 times the return on the house price index over five years, or 1.7 times if held for 10 years. But if house prices go down, investors will suffer 50% of the fall, or 30% if held for 10 years.
The second option is a "protected" fund in which investors receive the same return as the index, but are guaranteed the return of their original investment if the index falls over the period. Finally, there is an "income" option which pays 2-3% a year, plus the rise (or fall) of the index. Returns are tax free, so long as they are put into an Isa where the maximum investment is pounds 11,520.
Since launching in October 2012, the growth Housas have delivered between 11.8% and 13.4%.
If the scheme had been running over the past 10 years, how would investors have fared? Back in January 2004, the average UK house price, according to Halifax, was pounds 145,430, compared with pounds 175,546 last month - having been as high as pounds 199,612 in August 2007. The decade-long gain is equal to a rise of 20.7%, which is what "protected" investors would have received. Those in the "growth" option would have obtained 1.7 times the index, suggesting a rise of 35.2%. These returns are poor in comparison with funds that track stocks and shares. The FTSE 100 index has gone from 4,412 to 6,780 over the past 10 years, a gain of 49%.
Nonetheless, Darius McDermott of Chelsea Financial Services is a supporter of the Housa concept. "The protected five-year tranche is interesting for those looking for exposure to residential property. The only chance of losing money is if Castle Trust goes bust and, even then, you are covered up to pounds 50,000 by the financial services compensation scheme. The Halifax price index is a broad national index, 11% in London, so you are not overly exposed to any one region. You can get your money out before the end of the period, but you will lose some of the capital. But if you are willing to stay for five years it seems a decent deal."
Other financial advisers are less sure. Mark Dampier, investment director of Hargreaves Lansdown, says: "The thing anybody investing in property has to think about is liquidity. If the property market falls, and you want your money back, then that's when you find the investment may be totally illiquid.
"You also have to sign up for a number of years. I'm just not a fan of financial products with little liquidity. And, in any case, I think property prices in parts of London are completely nuts."
Castle Trust says it prices its products daily, so investors can redeem at any point, but they will lose some of their returns. More of a concern among investors will be how it can really promise to match the Halifax index, and whether investors are putting cash into the type of derivative index product that became so toxic during the financial crisis.
Sean Oldfield, chief executive of Castle Trust, says: "We are not a fly-by-night operation. We are authorised by the Financial Conduct Authority and what we do is really the same as a building society - but rather than have interest rates we pay a return linked to house prices. The money is generated from the landlords we lend to. There are no counter parties and no derivatives used."
Castle Trust takes no view on future house price rises, but does collate the guestimates from economists and market pundits. The Office for Budget Responsibility, a government body, is forecasting growth of 5.2% for 2014, while others are predicting 7-8%.
It is striking how few funds there are available for investors who want to put money into residential property. Most invest in commercial property - offices and retail premises - or in the shares of companies such as British Land which builds many of London's skyscrapers.
An alternative to Castle Trust is Hearthstone, which operates a "property authorised investment fund" (PAIF) that tries to match the growth in house prices as measured by the LSL Academetrics index. It trades more like a conventional unit trust (making it easier to buy and sell) and can be put into a tax-free investment Isa. It has a minimum investment of pounds 1,000 and, over the past year, has made a gain of 4.5%. It has around 84% invested in physical property, with the rest as cash.
Wealthier investors who want to speculate on the London market can consider the funds offered by property managers LCP. Last week saw the launch of London Central Apartments II which invests in one- and two-bed apartments in exclusive locations around Hyde Park. LCP renovates the apartments and then rents them out to "blue chip" tenants. It says its London Central Residential Recovery Fund, launched in April 2010, made 44%, and that investors can expect to earn around 14% a year over the fund's five-year life. However it's only open to those with a minimum of pounds 85,000 to invest.
Playing the property market: Housas are delivering returns of up to 13.4%