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Property funds suspended

Around £35 billiion – or 7 percent of the total investment in UK commercial property – is invested in commercial property funds, which offer private investors a chance to put money in huge office block developments and shopping centres.

With a 40 percent rise in commercial property prices since the 2009 financial crisis, these funds have offered investors a much better return than cash or bonds.

Following the referendum result, investment firms recorded an increase in requests from investors to withdraw money from property funds.

Large-scale outflows would cause problems for commercial property funds because they are based on assets that are difficult to sell quickly when investors want their money back. The only way of guaranteeing a fast sale of an office block is to slash the price, which would prompt other investors to want out, creating a vicious circle. To avoid this, several funds immediately adjusted their pricing to make withdrawals less attractive.

On 4 July Standard Life went further, halting trading in its £2.9bn commercial property fund – effectively locking investors’ money in. It was the first UK property fund to suspend trading since the financial crisis of 2007–09.

On 5 July M&G Investments and Aviva Investors barred withdrawals from their property funds, with assets worth £4.4 billion and £1.8 billion respectively.

Henderson Global Investors, Columbia Threadneedle and Canada Life followed suit on 6 July.

On the same day Aberdeen Asset Management announced it was halting trading in its property fund for 24 hours and devaluing it by 17 percent – thought to be the biggest adjustment ever made by a property fund . It later extended the trading ban until 11 July.

This took the total value of property funds suspended to £18 billion – more than half of the total.

 

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