UK property funds ban withdrawals, locking in £15bn
Covid-19 crisis renders building valuation impossible
Around £15bn ($17.3bn, €16.1bn) of savers’ money is now locked into open investment UK property funds, as many ban withdrawals amid the ongoing Covid-19 crisis.
Funds run by the likes of Aberdeen, Janus Henderson, Standard Life and Threadneedle have all been suspended as Britain’s largest property market, London, prepares for a potentially complete lockdown.
Legal & General has led the way, suspending its £3bn UK Property Fund, the largest such closure since the vote for Brexit in 2016.
With the pound (GBP) slumping to its lowest level on the dollar (USD) in 35 years and the FTSE 100 falling more than 32 per cent in the past month alone, valuers have argued that it is near impossible to accurately value properties amid the ongoing uncertainty.
The Financial Conduct Authority (FCA), sided with this viewpoint, stating: “In such situations, a fair and reasonable valuation of CRE (commercial real estate) funds cannot be established.” Britain’s finance regulator added: “In these circumstances, suspension is likely to be in the best interests of fund investors.”
While some investors and savers will balk at not being able to retrieve their money, without such measures many of these funds would struggle to survive. The ongoing uncertainty triggered by the novel coronavirus outbreak would make it difficult for these funds to sell off their properties fast enough to meet repayment demand.
The fragility of some leading British property funds pre-dates the Covid-19 crisis. In December M&G, one of the UK’s largest such entities, banned withdrawals citing Brexit uncertainty and the changing landscape of the retail sector.
Even then, with the availability of independent valuations, the fund was unable to sell fast enough to meet demand for reimbursement, seeing £1bn flow out in 12 months.
While the rise and fall of Covid-19 is a mathematical certainty, the virus has the potential to trigger longstanding changes in the UK commercial property market. If the ongoing countrywide experiment of working from home proves successful then the sector could face a drop in demand for office space.
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