Irish property market shows new stress when fund blocks withdrawals

IRISH Life Assurance has blocked withdrawals from its 500 million euros (S$714 million) Irish property fund for a six-month period due to a recent increase in customer requests.

The notice period will allow time to make any property sales “as required to pay future withdrawals” and in a manner that is fair to all customers, the insurance and pension provider said in a statement.

The move adds to signs of stress in the Irish commercial property market, which saw a significant reduction in investment volumes late last year as higher interest rates and inflation added to investor hesitancy.

Returns on Irish real estate assets slumped 4 per cent in the final three months of 2022, the MSCI/SCSI Ireland Quarterly Property Index showed.

Bank of Ireland Group said it expects Irish commercial real estate prices to fall by 6 per cent this year amid rising interest rates and reduced demand for office space.

The sector is “an area of some concern” for the financial system overall, chief executive officer Myles O’Grady told reporters on Tuesday (Mar 7) after the bank reported results. Office real estate will be a particular area to watch out for, he added.

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The bank expects prices in the sector to drop a further 2.5 per cent in 2024, before recovering 1.5 per cent in 2025, it said in a strategy update.

Even so, the risks are not unique to Ireland, O’Grady said. Like elsewhere in Europe, Ireland is feeling the effects of higher interest rates on demand.

The warning echoes concerns raised by Ireland’s central bank last November, when it introduced a 60 per cent leverage limit on Irish funds investing in the country’s commercial real estate. Property funds and other non-bank finance may be particularly exposed to any price corrections in financial and real estate markets, it noted.

Irish Life manages two large Irish property funds, the Irish Property Fund to which the notice period applies, and the Exempt Property Fund, which has 1.7 billion euros worth of assets under management and is unaffected by the change.

The firm said it would contact customers to tell them about the notice period for withdrawals, which was first reported by the Business Post. New Ireland, a subsidiary of Bank of Ireland, and Zurich have put similar restrictions on some of their funds over recent months, the Business Post and the Irish Times reported.

“Our long-term property outlook is favourable and unchanged. We continue to see property as an important part of people’s pension and investment portfolios,” Irish Life added. BLOOMBERG