Investors in UK property funds are facing bans on withdrawing their money after managers said the coronavirus crisis had made it impossible to value the buildings that they own.
Funds worth more than £7bn have been closed this week, and investors have been warned that more are likely to follow.
Managers have said they want to protect customers by ensuring that they do not make payments at a time when they are unsure of the value of their underlying assets.
Funds run by Standard Life Investments, Aberdeen, Aviva Investors, Legal & General and BDO were suspended on Wednesday, following two closures on Tuesday.
Paul Richards, the managing director of the Association of Real Estate Funds, said Covid-19 was causing “great economic uncertainty” and reducing the number of investment transactions which provide evidence for property valuations, meaning valuers could no longer assess the value of properties with a high degree of certainty.
He warned: “Under these conditions property funds need to suspend while this extraordinary situation lasts, in order to ensure that investors, mostly long-term pension savers, are protected.”
A spokesperson for Aberdeen Standard Investments, which runs the £1.7bn Standard Life Investments UK real estate fund and the £1.1bn Aberdeen UK property fund, said the action reflected the “exceptional circumstances” in global markets.
“Markets around the world have experienced huge disruption as Covid-19 spreads and trading in the UK property market is being severely impacted,” the spokesperson said. “We will aim to lift the suspension as soon as confidence returns to the market and there is more certainty regarding asset valuations.”
Earlier, the investment firm Aviva suspended trading in its £461m UK property fund.
The fund, which invests in a range of commercial properties including offices, high street shops and leisure facilities, is regularly valued by an independent company and the price of buying shares in it is determined by that valuation.
Aviva said it had been advised that there was currently too much uncertainty in its valuation, and there was a risk that investors could buy or sell shares at a cost that did not reflect their true worth.
In a statement it said trading in the property fund and feeder funds related to it would be suspended from midday on Wednesday until further notice.
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Information: If you live with someone who is 70 or over, has a long-term condition, is pregnant or has a weakened immune system, try to find somewhere else for them to stay for 14 days.
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Source: NHS England on 18 March 2020
Anyone who had paid into the fund since midday on Tuesday would receive their money back.
Aviva said the decision had been made “to safeguard the interests of investors”.
It said the impact of the pandemic on the market had made valuations less certain. “As a result, the standing independent valuer has advised us that there is currently ‘material valuation uncertainty’ for all direct property assets within the portfolio.”
On Tuesday, two other asset managers, Kames Capital and Janus Henderson – the UK’s largest property fund – took similar moves to suspend trading in funds holding UK property.
Following that announcement Ryan Hughes, the head of active portfolios at investment firm AJ Bell, predicted that other funds would follow suit.
“With two of the largest independent valuers saying they cannot accurately determine the value of property, it’s almost certain that all open-ended property funds will now have to suspend dealing,” he said.
The commercial property market has been hard hit in recent months by retail closures and uncertainty over Brexit.
One of the UK’s biggest property funds, M&G, banned withdrawals in December after seeing £1bn worth of money flow out in 12 months.
It said it was unable to sell off its properties quickly enough to meet demand for repayments, and blamed “Brexit-related political uncertainty and ongoing structural shifts in the UK retail sector”.
Patrick Connolly, a financial planner at the independent financial advisers Chase de Vere, said the suspensions would allow valuers to gave a better understanding of the impact the coronavirus was having on property prices.
“While the suspensions may be a concern for investors, they need to keep calm,” he said.
“Investors should have been aware of the liquidity risks in property, should only have a small proportion of their portfolio in property funds and, in recent weeks, the performance of open-ended property funds has stood up much better than property investment trusts and the stock market in general.”
