The last collapse of the real estate in London was during the financial crisis of 2007 and 2008, real estate funds were forced to freeze operations after withdrawals surged, contributing to a property-market slump that saw values drop more than 40 percent from their United Kingdom peak.
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M&G, which manages the largest United Kingdom commercial property fund, said redemptions in the fund have “risen markedly” due to uncertainty created from the outcome of the European Union referendum.
Many funds contain clauses which allow a manager to suspend dealing in exceptional circumstances, if it is deemed necessary in order to protect the interests of investors.
Firms said high levels of uncertainty caused by the referendum have led to investors rushing to withdraw funds. “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”, LGIM said in a statement.
“It’s probably only a matter of time before we see other funds follow suit”.
M&G Investments suspended redemptions from its M&G Property Portfolio vehicle yesterday, while Aviva Investors and Standard Life Investment also suspended trading in some of their investment vehicles earlier this week.
Trading has been suspended because the fund managers can not liquidate, or sell-off, the underlying assets fast enough to meet investors demand for their cash back.
The suspensions cover at least 14.7 billion pounds of United Kingdom real estate assets, Bloomberg Business reported Wednesday, or more than half the total in major funds.
After the suspension of M&G’s fund, Hargreaves Lansdown’s Laith Khalif said: “The dominoes are starting to fall in the United Kingdom commercial property market, as yet another fund locks its doors on the back of outflows precipitated by the Brexit vote”.
“The speed and scale of this move is a little surprising considering Standard Life, along with other managers, seemed to have sufficient levels of cash and liquid assets to cater for anticipated withdrawals”.
Confidence in the United Kingdom property sector took a further pounding on Thursday after Legal & General made a deeper cut in the value of its property fund.
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Aberdeen said its funds had invested in 79 United Kingdom properties across sectors including retail and industrial.
