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Real Estate Market Stabilises as Property Funds Re-open

Promising Signals From Fund Managers That Property Prices Are Surviving Brexit

Following a wave of panic in the summer months, Standard Life Investments has joined four other major investment companies in lifting, or pledging to lift, the suspension of withdrawals from their property fund.

Back in July, the fund house was the first to block investors from withdrawing money, and other companies quickly followed suit.

The move is one of the strongest signals yet that the slump in property prices that forecasters were predicting after the EU Referendum is not going to happen, and investing in London property remains one of the safest forms of investment in current economic times.

Why Were Investments Blocked?

Standard Life initially blocked investors from removing their money in July, amid fears over UK property valuations, following the result of the EU Referendum. Concerns were heightened by some funds hurrying to sell properties immediately after the referendum, causing a short-term dip in valuations.

Where Standard Life led, other fund companies followed, including M&G, whose £4bn property fund is the largest in the UK.

Often, this kind of battening-down of the hatches can lead to self-fulfilling prophesies, but in this case, the property market proved more buoyant than many expected. Commercial properties saw a slight drop and transactions were generally low in the eight weeks following the referendum, but that was as bad as it got. The residential market has maintained the same steady and consistent growth that it has shown throughout the economic turbulence of recent years.

Re-Opening Funds

Standard Life confirmed that they would re-open the funds in view of the fact that the “commercial real estate market has stabilised”.

Standard Life’s Head of Real Estate said, “In the immediate aftermath of the EU referendum result, redemptions from retail investor property funds increased dramatically whilst property transactions reduced significantly. During the period of suspension, the fund has been able to restore liquidity through an orderly disposal of assets. We are pleased with the progress made and the removal of the market value adjustment.”

However, while Standard Life was the first to block the funds, it is not the first to re-open them – Aberdeen, Henderson, Canada Life and Columbia Threadneedle having already made similar announcements.

M&G Investments announced on Friday 21 October that with effect from noon on Friday 4 November 2016, it will resume trading in the shares of the M&G Property Portfolio and its feeder fund, the M&G Feeder of Property Portfolio. 

The View Of The Regulators

The property fund suspensions caused raised eyebrows in the city and led to questions as to the suitability of offering investors funds that on the one hand invest in highly illiquid assets like real estate, but on the other promise daily liquidity through open-ended structures.

The Financial Conduct Authority is at present leading discussions with the industry on how any future mass withdrawals should be handled.

Good News For Property Investors

While the whole issue of property funds has proved a headache for investors over the past quarter, the issue has highlighted that the property market in itself is stronger than many people thought. From the global recession to Brexit, it has remained buoyant, and that can only be good news for homeowners and property investors alike.

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