Property Funds re-open for Business after Initial Brexit Panic

The EU referendum was over a month ago, but the ramifications experienced by the financial markets are continuing – albeit amid less volatility. The UK’s property market was hit hard across the board. There are signs, though, that the initial panic has eased and business and some investment has recommenced.

“Property prices are as a vulnerable to bad news as the next investment so the immediate volatility wasn’t as much of a surprise as the Brexit decision itself,” said Lawsons & Daughters, a Fulham estate agent.

UK property funds fared pretty badly; investors sought to redeem their funds as worries over commercial property prices took hold. So fraught was the behaviour that a number of high profile property funds stopped investors from redeeming their investment, an action called “gating” a fund.

M&G, Standard Life, Henderson, Aviva Investors, Canada Life and Columbia Threadneedle had all closed or gated their UK property funds by July 8, which meant investors were unable to redeem their investment in them. At the same time, Aberdeen Asset Management and Kames both cut the value of their funds by between 5% and 17%. That meant that investors who recalled their investment would receive a lower amount than they would have been able to achieve pre-Brexit. Additionally, a Reuters report said BlackRock had raised the redemption fees on its UK Property Fund, another way to encourage investors to sit tight and leave their investment in place.

Since then, some calm has returned to the markets. Some funds have begun selling the commercial properties held by the Fund to facilitate investors redemption requests, while others are fully operational once again allowing investors to remain or redeem. L&G is among one of the first to remove the higher charges associated with Property Fund investment redemptions.

Aberdeen Asset Management is reported to have found a buyer for one of its commercial properties, an office block in Hammersmith. And, Aviva and Standard Life are also reported to be selling some of their property find holdings.

These sales likely represent a great opportunity for overseas investors given the pound remains weak despite regaining some ground. Indeed, Asian buyers are said to be looking for opportunities to enter the UK property market, both on a residential and commercial market basis.

“London’s appeal is well-known and will likely remain despite the Brexit-induced uncertainty,” said Denhan Guaranteed Rent specialists. “The city will bounce back because property here is always popular with businesses and residential renters.”

Even if commercial property values do bounce back, the lower level of the pound makes investment in London property considerably more attractive than it was before the referendum. And, provided the Brexit negotiations achieve business friendly results, London should easily retain its attraction as a financial and cultural centre.

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