Negative effects of Brexit shows in UK real estate business
Three major real-estate funds have frozen withdrawals in the past two days, to slow the exodus of nervous investors. By doing so, the funds are trying to prevent a vicious cycle of selling that could force them to dump assets at extremely low prices, deepen losses and prompt more investors to rush for the exit.
The three real-estate funds run by Standard Life, Aviva Investors and M&G Investments pointed to heightened levels of stress in the market prompting investors to sell.
A top British regulator highlighted the potential risk to such funds, which invest heavily in assets that are tough to sell quickly.
The Bank of England said that the environment had become “challenging,” adding that there were “tightening credit conditions” in the commercial real-estate market.
To help provide support for the economy, the central bank cut the buffer that British banks need to keep on their books, a move that should allow them to lend more to businesses and consumers.
Real estate, particularly high-end properties in London, boomed in recent years as interest rates remained at record lows. Investors, in turn, chased yield, creating huge demand for mutual funds that invested heavily in the country’s malls, office towers and residential developments.
While they represent a small piece of the mutual fund world, such investments have ￡25 billion (US$32.38 billion) in assets under management. The Aviva, Standard Life and M&G funds account for about one-third of that market. ■