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Insight & Opinion

Property funds, Brexit and the contrasting health of the property market

Author: Staff

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In the months before the Brexit vote at the end of June, there were many fears that the property market would be facing a gloomy period should the public decide to exit the European Union (EU). It was thought that uncertainty would mean investors, both foreign and domestic, would back out of the UK’s property sector, which could leave the market in turmoil.

However, one month on from the shock vote, has this really been the case? What we’ve seen so far has been, of course, a short period of uncertainty, before one main group of market players seemed to go into a period of panic. However, the market in general has reacted better than could be expected since the vote went the way no one thought it would.

Property funds and the panic

Towards the start of July, and in the aftermath of the UK’s decision to leave the EU, it was revealed that a number of investors who have invested in commercial property funds, which invest in stock for the purposes of turning a rental profit, had decided to start backing out of the UK market.

In the wake of the Brexit decision, it was revealed that property funds are the weak link in the financial market in the UK at present. Many investors feared that a plunge in the value of commercial property such as office buildings and shopping malls coupled with the dramatic drop in the value of the pound, would hinder their investment.

funds and panic

Two funds, Standard Life and Aviva, were suspended in successive days earlier in July, before they were joined by the likes of Aberdeen. July in general has proved to be a weak period for funds, with many showing their lack of long-term health and freezing before they lose more money.

A statement from Standard Life explained: “The suspension was requested to protect the interests of all investors in the fund and to avoid compromising investment returns from the range, mix and quality of assets within the portfolio.

“The selling process for real estate can be lengthy as the fund manager needs to offer assets for sale, find prospective buyers, secure the best price and complete the legal transaction. Unless this selling process is controlled, there is a risk that the fund manager will not achieve the best deal for investors in the fund, including those who intend to remain invested over the medium to long term.”

Commercial property in general can be difficult to sell, particularly in a hurry, when investors want to recoup money. Financial issues caused by the likes of Brexit, and the potential for job losses that would negatively affect commercial property, make this problem even more acute, and as a result commercial funds have opted to freeze or suspend rather than lose more and more.

This was a big thing for investors, especially considering the fact that there is as much as £35 billion invested per year in commercial property funds, accounting for as much as seven per cent of the overall commercial property market.

For many investors, this was the first time they had seen commercial property funds in a negative light. While they were previously seen as being a strong long-term option, some lost as much as 30 per cent in the wake of Brexit. With this in mind, it’s no surprise there were suspensions abound among funds across the UK in the weeks post-Brexit.

resiliance-UK-property

Resilience in UK property

Even though the commercial sector, and funds in particular, has looked weak since Brexit, it’s important to remember that they are not indicative of the market as a whole. Many will have seen the news about property funds backing out of the UK in the last few weeks and assume that means doom and gloom for the market. But this is not actually the case.

New reports suggest that the property market, residential more than commercial, is stronger than it has ever been for investors. Knight Frank are predicting investment in build-to-rent, for example, to climb by £50 billion in the next five years, and report that there are now 5.4 million households in the private sector nationwide.

Demand in the residential sector has also grown in the last few months, even as Brexit’s potential loomed large over the sector. Demand for property in the UK is now three per cent higher than it was in the first three months of the year according to the latest hot spot index from eMoov.

What this shows is that even at a time when the market is filled with uncertainty about its future, there is still that underlying demand from both tenants and buyers to ensure that it pushes on and continues to grow. This means investors can rest assured that if they put money into residential projects, it’s likely to remain healthy.

A rise in overseas investment

A rise in overseas investment

Investment since Brexit has also seen a rise when it comes to money coming in from other countries. In the few weeks since the vote was finalised, various companies have reported a rise in money coming in from the Middle East, Far East, USA, and across Europe, which helps to illustrate the underlying health that the UK market has. Even when financial situations look dire, those from the outside can still see that the market has the sort of long-term potential that can’t be found elsewhere.

Speaking about the UK, Jason Wang, chief executive officer of Stamford Management in Singapore, commented, “[The UK] remains a key financial hub and a desirable destination.”

And, with the pounds decline, Wang believes that Brexit presents a ‘good opportunity to pick up some prime London properties.”

So even as commercial funds may be floundering in the UK, it appears quite evident that the property market as a whole has the potential to make it through this uneasy period and come out the other end as strong as ever.

“As the UK property market is still reacting to the Leave vote it is still too early to fully determine the effect but we have found it to have little affect so far. The UK property market has historically been deemed to be a safe haven by overseas investors, in both economic down turns and times of prosperity, and we do not have any evidence that this will change,” Jerald Solis, Business Development and Acquisitions Direction at Experience Invest recently told Home to Home. Read the full interview here.

Investing in build-to-rent properties offered by Experience Invest is a great way to secure yields through a time of uncertainty, as well as putting money into a thriving sector. Experience Invest allows you to buy off-plan units in projects in emerging cities like Liverpool and Manchester with the promise of fixed returns for up to three years, meaning you not only have fantastic returns, but also the assured income through a period like Brexit and the uncertainty this tends to bring with it.

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