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Valuation uncertainty triggers property fund suspensions

Dominic Rowles, Investment Analyst looks into why there’s been a recent increase in property fund suspensions and shares our view on property funds.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Experts who value assets held in property funds have recently been unable to determine accurate prices. What's the value of a pub no one can use, or a hotel no one can stay in?

Much will depend on the success of the government response to the coronavirus.

Without accurate property valuations, fund managers can't properly calculate a fund's unit price. That means there's a risk that, if the funds continued trading, investors could buy or sell units at a price that doesn’t properly reflect the value of the underlying assets. Ultimately, some could benefit at the expense of others.

This means a number of UK property funds have temporarily suspended dealing. A list of suspended property funds can be found below.

  • Aberdeen UK Property
  • Aviva Inv UK Property
  • BMO UK Property
  • Janus Henderson UK Property
  • Kames Property Income
  • Legal & General UK Property Trust
  • M&G Property Portfolio*
  • Standard Life Inv UK Real Estate
  • Threadneedle UK Property Trust

*The M&G Property fund has been suspended since December 2019. It was unable to sell properties fast enough to keep pace with a surge in investor redemptions (investors selling units of the fund).

Our view on property funds

The spread of coronavirus is something of a one-off event. But this isn't the first time property funds have been forced to close.

When the economic outlook isn’t so good, or when performance has been poor, investors tend to sell property funds. This often forces the manager to sell properties to give investors their money back. Commercial property isn’t easily bought and sold. It’s time-consuming, labour-intensive, and expensive. When fund managers can't sell assets fast enough to meet investor redemptions, they have to suspend dealing.

The last time a large number of property funds were forced to close was following the 2016 Brexit vote. Since then, many funds have maintained higher levels of cash, which can help meet demand in the event of an increase in levels of redemptions.

Overall though, we don’t think unit trusts and ‘open-ended’ funds are ideal vehicles for investing in physical property. This is why we don't feature any property funds on the Wealth 50 list. This article isn’t personal advice. If you’re unsure, please ask for advice.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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