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Caution reigns supreme for troubled UK property market

Despite a reduction in outflows it seems the majority of UK property fund providers are not counting their chickens when it comes to accessing the troubled sector.

Everyone knows the story of how the market fell away drastically at the end of 2007, with many overly exposed getting their fingers burned from the troubled asset class.

Much of the blame has been put at the feet of investors looking for a quick win from a sector that at the time was producing strong double digit returns for the past few years. However, as the trouble ensued some firms moved funds to a bid-only basis, while others took the extra step of introducing a deferment period, ranging from 90 days to a year, for investors to take their assets out of the funds.

This week saw updates from those providers, with caution the most prominent theme.

Friends Provident said last week that it has temporarily lifted the notice period on its property fund although it reserves the right to reinstate if necessary.

The company says it now has increased cash levels sufficiently to clear the queue for withdrawals, having originally imposed the notice in December 2007.

Aegon Asset Management has also revealed that it is reviewing its stance after raising the liquidity level on its property fund. However, the group says it is intent in looking after all its customers not just those looking to escape.

The likes of New Star and Norwich Union also look set to continue on the prudent path, with their funds remaining on a bid-basis.

NU has taken as big a hit as anyone with their flagship property trust falling from £4.4bn to £2.5bn in the past year or so. The firm says redemptions are now at 5 per cent of the levels they were in late 2007 and early 2008. Liquidity is also up at around 6-7 per cent.

Hargreaves Lansdown head of research Mark Dampier believes that although property may have fallen to its lowest ebb, that does not mean a bounce is forthcoming anytime soon.

He says: “The market conditions for commercial and residential property are absolutely awful. The outlook is poor with rental growth falling and all you can say is that those that have looked to leave have left already.

“There is too much risk there as returns, I believe, have been borrowed from the future. The asset class has failed as a diversifier with a number of funds down significantly in the past 12 months.”


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