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Fund managers handling over £10 billion (S$17.9 billion) in commercial property assets in the UK have slashed the value of their buildings by five percent, following the British electorate’s 52 percent vote to leave the European Union, reported the Financial Times.
The writedowns reflect property investors’ pessimism regarding the impact of Brexit on their assets. At the advice of valuers, UK property funds run by M&G Investments, Henderson, Aberdeen, Standard Life Investments, Kames Capital and Legal & General have all marked down the value of their property portfolios by 4.5 to five percent, using what is known as a “fair value adjustment”.
“We believe that properties coming to market now are unlikely to achieve recent valuations in terms of sale price — at least for the time being,” said an Aberdeen spokesperson, noting that there was “evidence of buyers avoiding the current market uncertainty”.
Based on the IPD index, the devaluations follow three years of double-digit returns from property investments in the UK. The majority of these were made by open-ended funds accessible to retail investors who can request their money back even on short notice. Nonetheless, one of these, the Standard Life Pooled Pension Property product, is being targeted at institutions.
In these circumstances, M&G said there is a possibility that investors who redeem will get exceedingly high value for their shares at the expense of those who decide to stay in the fund. Managers are also keen to minimise problems such as those witnessed during the 2008 crisis, when investors rushed to cash out of property funds, forcing many to sell their buildings at fire-sale prices and yet many more to suspend redemptions.
“(The price cuts) reflect where they think confidence is right now and its influence on pricing,” noted Fidelity International’s real estate investment director Adrian Benedict. To date, Fidelity, which runs institutional funds, has not altered its pricing.
“The industry is trying to make sure we don’t repeat the mistakes of 2008 and 2009, when we saw an imbalance in flows,” he added.
Cheryl Marie Tay, Senior Journalist at PropertyGuru, edited this story. To contact her about this or other stories, email cheryl@propertyguru.com.sg
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