Standard Life and Aviva suspend trading on property funds

Standard Life halted trading in its £2.9bn fund at midday yesterday, citing “exceptional market circumstances”, while Aviva suspending trading in its £1.8bn fund today due to “extraordinary market circumstances”.

Investors won’t be able to buy or sell units in the fund until further notice, while the managers look to raise money by selling off some of their portfolio.

Standard Life said it took this action in order to protect investors who wish to remain in the fund, who could otherwise be negatively affected by fund liquidations.

This morning the Bank of England also said it was monitoring the behaviour of investors in open-ended commercial property funds, as one of the risks to financial stability in the UK.

The central bank’s Financial Stability Report also noted that foreign investment in the UK commercial real estate market fell by 50% in the first quarter of this year.

Laith Khalaf, Senior Analyst at Hargreaves Lansdown, commented: "The dominos are starting to fall in the UK commercial property market, as yet another fund locks its doors on the back of outflows precipitated by the Brexit vote. It’s probably only a matter of time before we see other funds follow suit.

"The problem these funds face is that it takes time to sell commercial property to meet withdrawals, and the cash buffers built up by the managers have been eroded by investors heading for the door, both in the run up to the EU referendum, and in the aftermath.

"This is part of the problem with investing in open-ended property funds, and one of the reasons we don’t recommend them to investors. Property does offer diversification, and a reasonable yield compared to government bonds, but investors must be willing to accept high costs, and a lack of liquidity when the market turns down.

"Given the outflows the sector seems to be experiencing, this could well put downward pressure on commercial property prices. The risk is this creates a vicious circle, and prompts more investors to dump property, until such time as sentiment stabilises.

"Continued low interest rates in theory provide support for commercial property, because as prices fall, yields become even more attractive. However at the moment, investors appear to be leaving the sector, rather than buying in."