Last week, multiple fund managers all suspended trading in their UK property funds. The main ones that effect Irish investors is the Standard Life and Aviva UK Property Funds. What does this mean for people who have invested into these funds?
It had been feared the UK commercial properties were overpriced. Then, with the UK voting to leave the UK, the outlook for UK commercial property didn’t look so good. The demand for London office space in the years after Brexit may take a big hit if businesses look to relocate within the EU.
This has lead to nervous investors looking to take their money out of the UK property funds. As these funds buy actual buildings, it can take a while to sell the actual properties. The fund manager also does not want to be forced into a panic sale where they get a poor price for the asset.
The funds all hold liquid assets (13.1% of Standard Life’s fund is in liquid assets) but a large portion of this is in Real Estate Investment Trusts which have also been hit hard by the Brexit vote. However, to prevent a drain on these liquid assets and the forced sale of properties, the fund managers have suspended trading on these UK property funds.
While trading is suspended, you cannot take your money out of these UK property funds. Aviva have deferred any request for 6 months, so a request made today will not be actioned until 6 January.
For those long term investors who see this as an opportunity to buy into the UK property funds while they are cheap, no such luck. The funds are also closed to people looking to invest too. Those who make existing regular contributions e.g. monthly pension contributions, can continue investing.
There are some withdrawals that are not effected such as reaching your chosen retirement age or if you have set up a regular withdrawal facility, you can continue to take withdrawals from these UK property funds. You need to check with your fund provider as they have their own criteria.
Yes, during the last recession a lot of both Irish and UK property funds suspended trading to prevent the forced sale of the properties in their portfolios. When conditions improve, the suspensions were removed.
This is another reminder that property investments, whether through funds or direct purchases, are illiquid assets. To sell these assets, especially in times of uncertainty will take time.
Property should only form a portion of your portfolio. For those looking for a return, equities should form the core of your holding; they are liquid assets and equity markets react quicker, meaning they rise and fall much quicker than property.
Have a diversified portfolio. We don’t know which asset class or region will perform the best or worst at any given time. So have well diversified portfolio with a bit of everything.
If you have any questions, you can contact me directly at steven@bluewaterfp.ie