Fears over plunging prices of British commercial real estate triggered a record £1.65 billion of redemptions from property funds during the final quarter of 2007, more than twice the withdrawals made in the whole of 2006, according to the Association of Real Estate Funds.
Since the end of November eight property managers have imposed time restrictions ranging from three months to a year on investors looking to redeem units in property funds, affecting more than £10 billion of assets and about 450,000 retail investors.
So far none of the big so-called authorised unit trusts have closed the doors to any of their investors wanting to cash in their investments, but yesterday Mark Hodges, chief executive of Norwich Union Life, said that his company had “provisions in place if necessary to suspend or defer payments,” from its property funds.
The value of Norwich Union’s property trust – Britain’s largest property fund – fell from a peak of £4.4 billion last May to £2.8 billion this month. It recently changed from monthly to fortnightly valuations.
Mr Hodges added, however, that “with cash balances of 6 per cent to 7 per cent [in the funds], we are working to stay open for business”.
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The Norwich Property Trust had 6.4 per cent of its assets in pure cash or cash-equivalents – shares in quoted property companies - at the end of December, down from 14.3 per cent at the start of 2007. The Norwich Union Life & Pension Fund was valued at nearly £2 billion at the end of 2007. with 7.1 per cent of funds in cash.
Philip Scott, finance director of Norwich Union’s parent company, Aviva, added: “There is the possibility that we will need to defer redemptions in the event that there are an excessive number. It is important that that safety valve exists. Investors should not expect to be able to exit in every circumstance.”
Nick Cooper, chief executive of ING Real Estate and president of the Association of Real Estate Funds, told The Times: “None of the authorised property unit trusts have closed. They have all done what they said they would do – return money on the same day to investors who wanted out – but the price of that has been they have had to sell assets very hard.”