Opinion  

Property wobbles caught some by surprise

Kevin O’Donnell

Kevin O’Donnell

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.

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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