UBS Asset Management said it already expected price declines of 4-10 percent on City properties in 2017-2018 due to large volumes of construction.
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Aviva suspended trading on its £1.8bn property fund shortly after Standard Life on July 5 in light of what it sees as “extraordinary market circumstances”.
“At this time it is still hard to predict the exact impact of the vote to leave and subsequent market events on commercial property values”. Aberdeen Fund Managers Ltd cut the value of a property fund by 17 per cent and briefly halted redemptions so that investors who asked for their money back have time to reconsider.
Columbia Threadneedle, Henderson Global Investors and Canada Life announced on Wednesday afternoon that they will not allow customers to cash in shares in their property funds, citing liquidity pressures.
The company said the diluted price is “not a reflection of what we believe is achievable in a stable market where there is not undue pressure to sell assets”.
An open-ended property fund invests in property – be it commercial or residential – and the amount of cash available to be invested is equal to the amount of money individual investors have put in.
The ins and outs of commercial property investments remain a mystery to many.
But in the last week more than 18 billion pounds ($23.26 billion) of retail investor cash has been frozen as funds run by M&G Investments, Standard Life Investments and Threadneedle Investments, among others, suspended trading to allow time to sell some of the buildings, a process which can take many months.
It said: “Investor redemptions in the fund have risen markedly because of the high levels of uncertainty in the United Kingdom commercial property market”.
El-Erian, the former Pimco boss who is now chief economic adviser to Allianz, added: “The suspensions imposed by [these] fund managers are likely to accelerate outflows from other similar funds, potentially also pushing them to impose limits on investor redemptions”.
Including Aberdeen, at least seven property funds have suspended trading following the UK’s vote to leave the European Union.
But as stated above, funds also want to avoid a forced sale, where the buyer would have more power in determining the price paid for the property.
“The problem with open-ended funds is you do start to have panic selling, so you really have no choice but to suspend the fund”, said Jason Hollands, managing director at investment firm Tilney Bestinvest.
She reckons property investors may be better served by real estate investment trusts (REITs) – closed funds with a set number of shares that pay dividends to shareholders.
British banks held about 90 billion pounds of the 183 billion pound commercial property loan market at the end of 2015, according to research by De Montfort University.
“The market is very active because people are looking to take advantage now”, Barnes’ president Thibault de Saint Vincent has said in a statement.
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“Banks haven’t really played the asset class in the last five years – it’s mostly been the shadow banking sector”, said analysts at Bernstein in a note.
