UK property valuers to ease warning, posing test for funds

[LONDON] Frozen UK property funds with nearly £12 billion (S$21.46 billion) of assets will soon face a decision: whether to allow investors to begin withdrawing their money again.

The funds for mom-and-pop investors halted trading in March, citing a trade body's determination that their assets couldn't be accurately valued as the pandemic brought the market to a standstill. Now that group is changing its mind.

A forum of property valuers organised by the Royal Institution of Chartered Surveyors (RICS) has reached a consensus that warnings about valuation uncertainty are no longer needed for almost all UK commercial property, said people familiar with the matter, asking not to be identified as the meeting is confidential.

A spokesperson for the RICS declined to comment.

The introduction of the so-called material uncertainty clauses in March prompted a slew of fund freezes, with managers obliged to halt redemptions when 20 per cent or more of assets in their funds are subject to such uncertainty. While managers will in theory be able to reopen the funds to withdrawals once restrictions are eased, they won't necessarily do so if redemption requests have piled up in the meantime.

RULE CHANGES

Current rules allow investors to withdraw cash from many property funds on a daily basis. The Financial Conduct Authority is considering imposing a notice period of up to 180 days for redemptions, with a new policy statement expected next year.

"I would expect that as soon as these funds reopen, many investors will be looking to sell their investments before any potential change in rules comes into force," said Ryan Hughes, head of active portfolios at AJ Bell. "This will force fund managers to start selling commercial properties into a very uncertain market."

Since March, the forum of valuers has eased restrictions on several categories of commercial property including offices and warehouses. The decision has now been extended to cover most shopping malls and stores, with an announcement due as soon as Wednesday, the people said.

Sales of UK malls and stores, already weakened by the shift to online shopping, ground to a near standstill during the coronavirus lock down and activity has only recently begun to return. RDI Reit announced Monday it had exchanged contracts to sell a portfolio of six retail properties to a fund managed by M7 Real Estate for £156.9 million.

Retail property values declined 0.8 per cent in August from a month earlier, with shopping malls down 1.9 per cent, according to data published by broker CBRE Group on Tuesday.

BLOOMBERG