Frozen UK property funds clear to open as value warning lifts

London

FROZEN UK property funds with nearly £12 billion (S$21.3 billion) of assets face a decision: whether to allow investors to begin withdrawing their money again.

The funds for mom-and-pop investors halted trading in March, citing a trade body's determination that their assets couldn't be accurately valued as the pandemic brought the market to a standstill. Now that group has changed its mind.

A forum of property valuers organised by the Royal Institution of Chartered Surveyors judged that the real estate market has picked up sufficiently for warnings about valuation uncertainty to be removed for almost all UK commercial property, according to a statement on Wednesday.

That opens the door for asset managers including Legal & General Group and Standard Life Aberdeen to reopen their funds so clients can get their hands on their money.

"There will be a queue of people lining up to pull their money out," said Simon Moore, director and head of research at Trust Research Ltd. Managers of large property funds "will all get together now to decide the next steps of action, how to sort out the problem of allowing redemptions to come out of their open-ended funds".

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The introduction of the so-called material uncertainty clauses in March prompted a slew of fund freezes, with managers obliged to halt redemptions when 20 per cent or more of assets in their funds are affected.

Since March, the forum of valuers has eased restrictions on several categories of commercial property including offices and warehouses. That has now been extended to cover most shopping malls and stores.

Aviva said on Wednesday that the decision will help liquidity in the property market. While its Aviva Investors Property Fund remains locked, the firm will monitor the market and update investors as soon as is practical, according to an emailed statement.

The coronavirus pandemic is the latest in a series of events that have exposed the mismatch between funds that allow daily withdrawals, but hold assets that take weeks or months to buy and sell.

The removal of the uncertainty clauses heaps pressure on managers to either reopen or concede that they have once again been hit with a slew of redemption requests.

The UK markets regulator is considering imposing a notice period of as long as 180 days for redemptions, with a decision expected next year.

"I would expect that as soon as these funds reopen, many investors will be looking to sell their investments before any potential change in rules comes into force," said Ryan Hughes, the head of active portfolios at AJ Bell. "This will force fund managers to start selling commercial properties into a very uncertain market."

Sales of UK malls and stores, already weakened by the shift to online shopping, ground to a near standstill during the coronavirus lockdown and activity has only recently begun to return.

RDI REIT announced on Monday that it had exchanged contracts to sell a portfolio of six retail properties to a fund managed by M7 Real Estate for £156.9 million.

Retail property values declined 0.8 per cent in August from a month earlier, with shopping malls down 1.9 per cent, according to data published by broker CBRE Group on Tuesday. BLOOMBERG