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Commercial crackdown?

There seems to be a looming question mark over the entire UK property market at the moment after several high-profile firms decided to move their vehicles from an offer to a bid basis in reaction to investors deciding it is time to get out.

Advisers seem to be split as to whether UK property is now on the wane, with some notable media pundits (you know who you are) resisting the urge to tell people that they told them so. Meanwhile, others are keen to point out that pricing changes occur all the time and that is a daily part of managing a fund.

What is interesting is how quickly the providers of these funds have rallied together in shouting from the rooftops this is a regular event, despite the fact communication on whether firms have moved to a new pricing point has been poor to say the least.

Prudential started this re-pricing train earlier this month, with M&G quickly following in tow. However, it was not until Standard Life announced a 6.7 per cent redemption fee on five of its life and pension property vehicles that the industry caught hold of it, leading to a flux of other firms following suit.

That is the crux of the whole issue. Granted UK property is not going to be the cash cow that returns near on 20 per cent as it has in the past three or four years, nor is it returning the high single digit returns predicted by many at start of 2007, but the speculation that the bottom of UK property is about to fall out is exactly that – speculation.

A number of IFA firms have been calling for this situation to be put into perspective and that changes like these happen all the time, but others are scared stiff they will fall into the same trap as with-profits earlier this decade.

It is these guys who are trying to pull money out hand over fist that are forcing companies to introduce these redemption fees to protect the long-term investors.

I would tend to side with Hargreaves Lansdown chairman Peter Hargreaves who believes that what some advisers have been doing is simply selling what is easy to sell.

He says: “The adviser’s job is to suggest where the client should be investing not what can be easily sold. 10 per cent in property is not bad advice. However when it gets to 30 per cent and more it does reek of too many eggs.

“The anxiety with a property fund is that the assets are not easily realisable. If investors start withdrawing their capital initially there is no problem, most property funds have liquidity predominantly in property shares and uninvested cash. Tension only commences when all the property shares are sold and all the uninvested cash has been used to pay out the sellers. At that stage a property must be sold. A property can only be sold for what some fool is prepared to pay for it. When there is no confidence in property you cannot find many fools.”

Some firms have already seen net inflows return to their respective property vehicles, with SWIP moving back to an offer basis on its property trust, while New Star is seeing inflows again and is waiting for the trend to develop before moving back to an offer on its own property fund.

Perhaps some advisers need to re-access their diversification tactics for their respective clients, while those who are pulling money out quickly need to realise that just because it looks, smells and sounds like trouble it does not necessarily mean it is.


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