Latest Posts

Windows PUPs: how do I remove potentially unwanted programs?

I recently updated Firefox, registered my free copy of Ad-Aware, and updated CCleaner. I then found two unwanted programs installed on my PC. One...

Dark Souls comes to PC – and your questions for From Software

Namco Bandai is bringing its brilliant action RPG to the PC, with extra stuff included. And we're talking to the developers in a couple...

is dead, says security expert at Symantec

Antivirus software only catches 45% of malware attacks and is “dead”, according to a senior manager at Symantec. Remarks by Brian Dye, senior vice-president for...

What can I do if Windows won’t run my old software, such as Quicken 2002?

I’ve been running Intuit’s Quicken for years: my current version is 2002 Deluxe. It runs fine under Windows 7, but I haven’t tried it...

Commercial property fund freeze – all you need to know

Commercial property funds have emerged as a weak link in the financial sector in the wake of the Brexit vote. Two funds have been suspended in successive days and more are expected to follow. Here are some questions about how they operate and the potential knock-on effects for the wider economy.

What are commercial property funds?

3000
They are funds that allow people to invest in commercial property developments, such as office blocks and shopping centres, that normally rely on money from major professional investors.

How much money is invested in them?

Around £35bn, or 7%, of the total investment in UK commercial property is invested in these funds.

Why are the Standard Life and Aviva funds being closed?

In the run-up to the EU referendum, investors started pulling money from these funds, presumably because they thought Brexit could reduce commercial property prices. Data from the Investment Association shows retail investors – or non-professional investors – had withdrawn £360m from property funds in May, the month before the referendum.

Brexit crisis: Pound hits $1.30, property funds frozen, and Bank of England eases capital rules
Pound plunges to new 31-year low as property funds refuse to let investors withdraw money after a rush of post-Brexit redemption requests

Large-scale outflows cause problems for these funds because they are based on assets – in this case, commercial property – that are difficult to sell quickly when investors want their money back. So the restrictions are being put in place to give fund managers time to sell their properties. Otherwise, they would be forced to sell assets at fire-sale prices to fund the redemption requests. That would drive down the value of the fund, encouraging more investors to cash out, creating a vicious circle.

“By limiting redemptions, funds would allow the uncertainty surrounding the UK’s political and economic environment to recede. In turn, this could stem fire sales, limiting the discounts at which funds would have to sell their holdings,” said Eduardo Gorab, a property economist at Capital Economics.

Are more funds expected to close?

Standard Life was first, then Aviva Investors announced restrictions. It is possible others will follow. Andrew Bailey, the new chief executive of the Financial Conduct Authority, said this should be seen not as a sign of panic but that the market is working properly. Suspension of funds was “designed into the structures to deal precisely with that situation where there’s been some shock to the market”.

Could this affect the residential property market?

It is not immediately clear how this feeds through into residential properties, although a hit to sentiment in the commercial property industry can quickly feed through to homebuyers, who might decide to pull out of transactions.

The Bank of England is concerned that if all the property funds seize up at once it could hasten any fall in commercial property prices. In its half-yearly assessment of risks to financial markets, the Bank said: “Any adjustment in commercial real estate markets could be amplified by the behaviour of leveraged investors and investors in open-ended commercial property funds”. Commercial property prices were flat in the first half of the year, the Bank said, although they were up 40% since the depths of the financial crisis.

Could this affect the broader UK economy?

Around 75% of small businesses use commercial property as collateral for loans, so they could face problems with their banks if prices fall too sharply. Banks also use commercial property to count towards their capital buffers; at the end of 2015 around 55% of their core capital – their main safety net in a crisis – was based on commercial property. The big banks were less exposed to commercial property than the smaller players, the Bank of England said.

The commercial property funds also invest a pool of cash – which is used as a float to pay investors when they withdraw their money – in the shares of listed property developers, such as British Land. This could also exacerbate share price falls in these companies.

Latest Posts

Windows PUPs: how do I remove potentially unwanted programs?

I recently updated Firefox, registered my free copy of Ad-Aware, and updated CCleaner. I then found two unwanted programs installed on my PC. One...

Dark Souls comes to PC – and your questions for From Software

Namco Bandai is bringing its brilliant action RPG to the PC, with extra stuff included. And we're talking to the developers in a couple...

is dead, says security expert at Symantec

Antivirus software only catches 45% of malware attacks and is “dead”, according to a senior manager at Symantec. Remarks by Brian Dye, senior vice-president for...

What can I do if Windows won’t run my old software, such as Quicken 2002?

I’ve been running Intuit’s Quicken for years: my current version is 2002 Deluxe. It runs fine under Windows 7, but I haven’t tried it...

Don't Miss

Create a Dynamic Form in WordPress

WordPress's super versatility has catapulted it far past its humble beginnings as a running a blog platform. It appeals each to the novice and...

Trump signs and symptoms sanctions

On the day that changed his existence, Gregory Cheadle nearly stayed in the mattress. He was tired — he traveled loads in his long-shot bid...

CHINA BANS NORTH KOREA TOURISM ONE DAY BEFORE TRUMP ARRIVES

one day before President Donald Trump arrives in China as a part of his Asian tour, u. S. Has banned tourism to North Korea,...

This excursion, take a ride to N. Korea

North Korea’s tourism business enterprise has released a website offering vacation alternatives starting from browsing to rice planting, despite sturdy U.S. Warnings to avoid...

What To Look For In Screen Recording Software

The screen recording software that is available nowadays runs the gamut between the most basic of recorders to advanced tools with lots of options....

Stay in touch

To be updated with all the latest news, offers and special announcements.