You are here: Home - Investing - Experienced Investor - News -

Investors warned to prepare for Brexit property fund suspensions

Written by: Owain Thomas
Uncertainty created by Brexit could spark steep property falls, causing property funds to suspend trading once again, ratings agency Fitch has warned.

Fitch suspects there is potential for the market’s reaction to the UK’s imminent departure from the European Union to be more severe than its reaction to the referendum result, particularly if there is a no-deal Brexit.

“Cash levels are marginally better than in mid-2016, when several funds gated due to investor anxiety linked to the UK’s referendum on EU membership,” Fitch said.

“But we do not think liquidity is strong enough to prevent withdrawal restrictions – should investors fear a steep market drop due to Brexit developments in the coming weeks.”

It also noted that withdrawals from property funds jumped in December, approaching the level seen after the referendum.

A spike in investor withdrawals from funds sparked a wave of selling activity by fund managers in the months that followed the referendum. The managers needed to free up the cash to meet these redemptions. Unable to sell properties quick enough, six property funds suspended trading while others continued to trade but imposed penalties of 10% to 15% – in the hope of discouraging investors from selling out.

“Rapid changes in sentiment, in relation to political declarations for example, could cause spikes in redemption requests beyond available liquidity, irrespective of the fundamentals of the properties held by the funds,” Fitch added.

The agency noted that listed real estate investment trusts (REITs), which are ‘closed-ended’, have also increased their cash levels. However, their intention is to position themselves so they can react quickly to investment opportunities that arise if asset values drop due to Brexit-related investor concerns.

Contagion risk

Fitch is concerned that a number of so-called ‘open-ended’ property funds will not be able to meet a potential surge in redemptions by selling assets, given the illiquidity of commercial property.

“Initially, funds with weaker liquidity would be more likely to have to implement a gate, but gating of one fund could spark contagion to other funds if it disrupts market confidence,” it continued.

“The UK open-ended property fund segment, although relatively small, could become the marginal seller of risk during the emergence of a Brexit-related stress scenario.

“In such a scenario, gating could cause negative investor sentiment to spread to other segments, which could ultimately affect financial stability,” it added.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

The savings accounts paying the most interest

If one of your jobs this month is to get your finances in order, moving your savings to a higher paying deal i...

Coronavirus and your finances: what help can you get?

News and updates on everything to do with coronavirus and your personal finances.

Everything you need to know about being furloughed

If you’ve been ‘furloughed’ by your company, here’s what it means…

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
Best one-year savings account pays 2.2%

Islamic bank BLME has hiked the rate on its one-year bond to 2.2%, taking it to the top of the...