A number of property funds have recently been suspended and so we wanted put your mind at rest.
What has happened?
There has been an increase in withdrawals which up to now the fund managers have been able to manage , however the volatility of the market since Brexit and uncertainty around the UK property sector has resulted in more withdrawal requests. So in order to protect longer term investors and control the selling process some fund managers have suspended dealing in their funds.
Why has this happened?
Property is harder to sell than shares (it is less liquid) the actual buildings can take a long time to sell, and there is a risk that, the fund manager will not be able to achieve the best sale price for investors in the fund.
Whilst it is not normal business practice to suspend dealing, these decisions reflect exceptional market conditions. All fund managers will act to achieve the best deal for investors, and this sometimes is to suspend dealing.
How could this affect you?
The value of the fund will still be given a price each day but it is not possible to buy or sell units in a suspended fund. This means that further contributions, fund switches and withdrawals will stop. For regular contributions, money will be redirected to cash. Automatic rebalancing will also stop. Automatic withdrawals will usually be unaffected unless the only fund you are invested in is a suspended (property fund) and, in this case, payments will be deferred until the suspension is lifted.
Is property still a good long term investment?
We feel that commercial property offers an attractive long term investment, within a structured portfolio.
The commercial property market is very different from the residential property market. Until recently, institutional investors had largely avoided residential property because of the small lot sizes and high potential cost of management compared to commercial property. Although the buy to-let residential property market has been popular with individuals, many such investors are overexposed to this asset class, particularly once the value of their own home is taken into account. They also face increased tax charges, following four new revenue-raising measures announced by the Chancellor during the second half of 2015.
The commercial property and equity market cycles are different. For example, while the UK and most other world stock markets fell between 2000 and 2003, the commercial property market produced positive returns.
Property has also usually provided investors with growth. The historic experience is that property growth has more or less matched the average rates of inflation. In the very long term, the bulk of returns have come from rental income.
Over the longer term, commercial property has generally been a less volatile investment than investing in stock market based funds, due mainly to the high proportion of the total return from property that is provided by income (rent), however there are other factors, including the effect of the traditional structure of long leases and upward-only rent reviews.
Of course, past performance is not a guide to future performance. The value of investments and income from them can go down as well as up, and you may not get back the original amount invested.
Property Fund Performance
The following table shows how the property funds most of our clients are invested in have performed over the last few years:
Source: Financial Express 31 May 20165
If you have any queries, or you would like to discuss property funds, please do not hesitate to contact us.
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