Daily Mail

Savers trapped in frozen prop­erty funds un­til 2021

- by Lucy White Business · Investing · Personal Finance · Infectious Diseases · Health Conditions · Financial Conduct Authority · Barclays · Schroders

Locked out for more than six months

SAVERS who have had their money locked in prop­erty funds since the be­gin­ning of the pan­demic could be forced to wait un­til next year to ac­cess their money.

ex­perts are pre­dict­ing that open-ended prop­erty funds, which were sus­pended in March as the coro­n­avirus cri­sis rocked the prop­erty mar­ket, may not be un­frozen for sev­eral more months.

One rea­son for the ag­o­nis­ing de­lay is that many fund man­agers are thought to be wait­ing un­til the Fi­nan­cial Con­duct Au­thor­ity (FCA) brings in rules to pre­vent this prob­lem hap­pen­ing again.

A slew of funds were forced to freeze in­vestors’ money in­side when coro­n­avirus hit. Wor­ry­ing that a prop­erty mar­ket slump could be on the hori­zon, the in­de­pen­dent ex­perts who reg­u­larly value prop­er­ties said the mar­ket was so un­cer­tain that they could not guar­an­tee the ac­cu­racy of their val­u­a­tions.

This meant fund man­agers could no longer be sure how much their in­vestors’ chunks of the fund were worth, when they wanted their cash back.

It fol­lows a sim­i­lar prob­lem in the af­ter­math of the Brexit vote, when a wave of in­vestors tried to pull their money out of prop­erty funds fear­ing that there could be a drop in com­mer­cial prop­erty prices.

Fund man­agers couldn’t sell the prop­er­ties fast enough to raise cash to pay back in­vestors, so were forced to lock them in.

The whole af­fair has been frus­trat­ing for savers, who have been locked out of their nest-eggs for more than six months.

The new rules which the City watch­dog has even­tu­ally pro­posed would en­force a no­tice pe­riod for all prop­erty funds, so in­vestors have to tell the man­ager they want to with­draw their money up to 180 days be­fore they can re­ceive the cash.

This would mean that if a rush of in­vestors asked for their money back, the man­ager would have time to re­view the mar­ket, as­sess a prop­erty’s value and sell to raise cash if nec­es­sary.

But the FCA’s con­sul­ta­tion is not due to end un­til Novem­ber, and then it will take more time to im­ple­ment the rules if the reg­u­la­tor de­cides to go ahead. Most man­agers are not ex­pect­ing any ac­tion un­til next year.

Ben Years­ley, di­rec­tor of Shore Fi­nan­cial plan­ning, thinks fund man­agers will sim­ply wait un­til th­ese new rules are in force be­fore they re­open their funds.

he said: ‘I think funds will go from what they are now to no­tice pe­ri­ods. Be­cause oth­er­wise, if they re­open in their cur­rent form, you’ll get a rush of in­vestors head­ing for the exit and they’ll all have to close again.’

But Years­ley is ex­pect­ing the FCA to act quickly to bring the rules into force.

he added: ‘If the FCA hasn’t sorted this by the end of the year, you have to won­der what they are play­ing at.’

Some funds may be able to open sooner. Those which al­ready have a longer no­tice pe­riod, and don’t al­low savers to pull their money out at a day’s no­tice, will be able to test the wa­ters by un­lock­ing their fund and see­ing how many in­vestors try to snatch back their cash.

But the lock­down has posed an­other major prob­lem for prop­erty fund man­agers, as the shift to home work­ing has caused busi­nesses from Schroders to Bar­clays to weigh up whether their need so much of­fice space.

Ryan hughes, head of ac­tive port­fo­lios at AJ Bell, said: ‘With more busi­nesses an­nounc­ing changes to work­ing pat­terns, and home work­ing look­ing like it’s here to stay, there is likely to be pres­sure on the val­u­a­tions of of­fices in the com­ing months and years – just as there is in the re­tail space where Covid-19 has seem­ingly killed many busi­nesses on the high Street.’

But Richard pea­cock, man­ager of the Kames prop­erty In­come Fund, ad­vised savers with money in prop­erty funds not to panic. ‘When you’re in the middle of a cri­sis, which we prob­a­bly still are, it can feel like the end of the world,’ he said.

‘If you have out­dated build­ings with small lifts and old ven­ti­la­tion then they could strug­gle fol­low­ing this pan­demic.

‘But do I think busi­nesses will forgo their of­fice space?

‘No I don’t.’

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