UK property funds set to benefit from low pound

Investors may have been have been barred from cashing in their assets in several big commercial property funds in recent weeks amid widespread disposals of UK assets as a result of mounting fears about the economic fallout from June’s vote to leave the EU, but the tide may now be turning for the market, as more foreign investors seek to take advantage of the weak pound to acquire British assets, according to a leading investment management company.

Henderson is among those property funds to have suspended withdrawals to prevent investors fleeing in the wake of the Brexit vote and to give it time to sell off properties to finance those withdrawals.

But despite fears that commercial property prices could crash amid a flurry of fire sales, the group report that the market is actually now showing signs of strength, thanks largely to a surge in the number of foreign investors active in the market.

Henderson’s chief executive, Andrew Formica, told the press: “To seek fire sale prices just to get some liquidity doesn’t feel right. We’ve started to transact on a number of properties and a number of others are close to transacting, and they are pretty much in line with the net asset value at the time of Brexit.

“That may sound surprising – clearly one of the reasons clients wanted to get out is they thought prices would fall – but because of the fall in sterling it has become a much more attractive market for non-sterling based buyers. They’ve just had a 10% to 15% windfall.

“Sterling has acted as quite a good moderator for market behaviour - I suspect that when these funds do reopen they will be broadly in line and we may even find that property prices have moved up from the pre-Brexit levels.” 

Although Formica was among those urging voters to remain in the EU, he believes that the government has taken the right steps since the leave vote to promote confidence.

“I wished the UK had remained in, so I am quite saddened by the result, but as with anything that is thrown at you, you should always try to turn it into an opportunity,” he added.  

Formica continued: “I look at the City of London as the global hub for financial services, and that means global, not just Europe, so I want to make sure we preserve the strength of the UK and the City in financial services globally.

“I’m quite please with the way [the government] has sought to strike deals with China, America, Canada, Australia, and broaden that global appeal as well as negotiating with Europe.”

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Yesterday, Aberdeen Asset Management relaxed the penalty imposed on investors who rushed to take their money out of its property fund last month.

Aberdeen initially imposed a 19% levy on any of its customers who wanted to cash in their holdings following June's Brexit vote.

Aberdeen's penalty is now back at the pre-referendum level of 1.25%.