Property funds in the post-Brexit world
Following the Brexit result of the EU referendum on 23rd June, a number of property funds chose to suspend redemptions following huge amounts of withdrawals from investors. This led to many predicting a gloomy future for the funds, but as we move further on from the referendum, many are changing their predictions to one of positivity.
Whilst many of these funds remain suspended in order to rebalance after the withdrawals at the end of June and beginning of July, in the long term those involved in property funds think it’s likely that they’ll not only regain their strength but will even have increased in value from their pre-Brexit levels.
One reason for this is the fall in the value of sterling, which is likely to pique the interest of foreign investors. Non-sterling based buyers can reap the benefits of the weaker pound, making investment in UK property funds much more attractive than before. With a fall in sterling of around 10% since the Brexit result, overseas investors have a great window through which to enter the asset class, one which they’ll likely want to take advantage of before it closes again.
Another factor to consider is that despite the mass withdrawal from property funds widely reported in the media, many have seen continued inflows from investors, with a number of funds seeing confidence in particular from institutional investors. So, whilst the funds have experienced a fall in profits and a drop in share value following 23rd June, these are now being viewed by many in the sector as a knee-jerk reaction rather than an indication of long-term problems into the future, and one which is already being repaired through investor confidence.
From the point of view of current investors in property funds, there are a number of positives to take from the last couple of months. The fact that property funds have been suspended may come as an initial shock, but this actually shows good management of the funds by those in control of them. Property funds are also likely to make up a small part of an investor’s overall portfolio, so any losses experienced should be manageable for those who have diversified.
Crucially, long-term investors who view property beyond its illiquid nature will recognise that, regardless of any immediate negativity following Brexit, property assets are an excellent investment in general. Anyone who has invested in a property fund over the past four years is likely to have seen very healthy returns, a fact which should not be pushed aside by recent instability.