Property has long been considered an important asset when it comes to planning for the future. Whether this is through ownership of a residential property, as part of a buy-to-let portfolio, or via property investment funds, many see bricks and mortar as an asset that can help provide security in later life and a combination of growth and income for investment purposes.
However, the events of this summer have provided an awkward reminder that property investment is still a risky proposition despite the universally accepted benefits of bricks and mortar.
The catalyst was Brexit, an event that made many investors wary about the short- and long-term outlook for residential and, in particular, commercial property in the UK.
Panic appeared to set in among many investors, with open-ended UK commercial property funds witnessing huge requests for withdrawals. Given the illiquid nature of property, meeting these requests by simply selling the assets within these funds is more complicated than elsewhere: the value is attached to something tangible that cannot be sold instantly.
This forced a number of managers to take drastic action and suspend trading on their funds, apply large redemption penalties, or adjust pricing to prevent or deter investors looking to escape and protect those who wished to remain invested.
Some funds have since eased these restrictions or reopened, but others remain shut for the foreseeable future. But with the mistakes of 2008 having seemingly been repeated, can the asset class recover from the blow to its reputation? What risks does the open-ended fund drama pose to other types of property investment?
“The surprise was not the gating of these funds, but that a key lesson from the last crisis had been ignored,” says Marc Haynes, senior vice president at Cohen & Steers, an asset manager that runs a closed-ended property fund.
“Presumably, managers thought things would be different this time and enhanced liquidity buffers would provide adequate protection against substantial withdrawals linked to market stress. Sadly, it did not,” Mr Haynes adds.
David Coombs head of multi-asset investments at Rathbones, recognised worrying trends in the sector at the start of 2016 and started to gradually reduce his property weighting, to completely exit by March.
“I was concerned about the amount of cash flowing into the property market – in particular the retail fund sectors – and it was very clear that managers were struggling to find the quality of building to fit with their requirement.”
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