OpinionJul 20 2016

Property wobbles caught some by surprise

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It caught a number of investors by surprise and no doubt some advisers. It will probably not be the last panicky action by financial providers, but I suspect most of the suspensions of funds will be lifted in the near future.

The suspensions have, however, highlighted how key property, both commercial and residential, is to national well being and investor confidence.

There are already signs of a slowdown in the residential property market and predictions of more challenging times ahead for commercial property.

Many readers will say, well there were a lot more effects of Brexit and indeed there were and we probably have not seen the last, but the stock markets have rallied and the pound has steadied. As far as I know, trading was not suspended in equities or the pound. For most investors the wobbles, at least for the time being, are over.

Given the dramatic suspension of some property funds (and I will deal with issues around open-ended funds later), it might be expected that financial advisers will have been inundated with anxious clients calling them, fearing financial catastrophe.

I know many have received a few calls, but the expected flood did not materialise. This may well have been down to markets steadying quicker than expected, but it may also be due to other factors too.

It might be expected that financial advisers will have been inundated with anxious clients calling them, fearing financial catastrophe

Some recent research I saw asked advisers why they thought clients had not inundated them with calls and the answer, in most cases, seems to have been that advisers got in first with the bad news, actively messaging clients with communications.

These provided both reassurance to clients, underlining the fact that they were on the case. These communications also answered most clients’ questions.

For this we have to thank modern communication such as email, texting and social media. All pretty much instant these days and now integral tools for most advisers.

We also have to thank the change in the nature of advisers brought about by regulatory momentum. Back in the bad old days of commission-driven sales, clients were seen as sales targets, to be ‘flogged to’ once and then forgotten.

I remember many IFAs in those times telling me they had 2,000 or more clients. In reality they were just buyers of a policy or investment plan and to be called ‘clients’ was stretching the meaning of the word.

Today, clients are seen as customers to be cherished and, vitally, kept informed. No client likes to be kept in the dark and to those advisers who went to great lengths to keep their clients up to speed with the momentous changes we witnessed, I offer you a pat on the back. For those who did not, perhaps your communication process might need some updating.

Now, at the beginning I mentioned I had more to say about the suspension of some open-ended property funds and it is worth remembering that many of the suspensions are likely to be temporary.

British investors love property, whether it is property funds, buy-to-let, Reits, or just letting out an old flat. With residential property prices up by 8 per cent or more in the past year, according to some surveys, and inflation not much above zero, it is no wonder investors remain convinced of the long-term value of bricks and mortar despite the fact it is just another asset class.

However, there is a problem unique to property. It is not, in general, a liquid investment. Some have argued that using open-ended structures such as unit trusts and Oeics creates more problems when investors suddenly rush for the door and we have seen what happens when they do.

This is something the regulator should look at, but I do not believe open-ended structures should be stopped from holding property. There may, however, be an argument for them to be reformed, becoming more liquid and holding more cash to meet a sudden rush of exiting investors.

Of perhaps more importance is the question of where next for the property market overall? There is uncertainty here and I have written many times that property confidence is often key to UK consumer confidence overall.

Many would-be home-buyers would dearly love to see prices drop a bit and maybe they will. A property recession is only a matter of time, despite any impact from future base rate changes.

At the other end of the spectrum, I have no doubt many of the investors who were trying to get their money out of property funds recently had no idea their fund could be suspended. Education may be key all round here and perhaps too many property investors are not fully aware of the pitfalls. As advisers have shown, well-informed and educated investors are the ones mostly likely to remain resilient and calm when times are turbulent.

Kevin O’Donnell is a financial writer and journalist