Frozen UK property funds face existential crisis

LONDON (Reuters) – British property funds are set to remain frozen for months as the market is impossible to value due to the coronavirus crisis, and some may need to change structure to survive, industry sources say.

FILE PHOTO: Empty offices are seen as the spread of the coronavirus disease (COVID-19) continues, in London, Britain March 19, 2020. REUTERS/Dylan Martinez/File Photo

Ten big open-ended property funds tracked by Morningstar, with a total of 6.5 billion pounds under management, stopped investors from getting their money out in mid March, saying valuers could not accurately assess real estate assets in a plunging economy.

With question marks over the future of office working, the retail industry in crisis and the housing market only just reopening, the price of property is set for a major readjustment, but a dearth of transactions means the scale of change is still unclear.

“This is a crisis unlike any other,” said Ben Sanderson, a director at Hermes Real Estate Investment Management

“In the short term, it’s going to be hugely challenging.”

Many of the Morningstar-tracked funds are aimed at retail investors who could take their money out daily, managed by household names like Aviva (AV.L) and Legal & General (LGEN.L).

Such funds also suspended during the 2008/09 financial crisis and after the 2016 Brexit vote because their hard-to-sell assets meant they could not meet daily redemption requests.

But this crisis has extended further into the 70 billion pound UK property fund sector.

For the first time, funds aimed at institutional investors like charities and pension funds have also locked their doors.

These funds typically only allow redemptions monthly or quarterly.

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