Savers trapped in frozen property funds until 2021 with watchdog still to bring in new rules
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.
Experts are predicting that open-ended property funds, which were suspended in March as the pandemic rocked the property market, may not be unfrozen for several more months
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.’
A slew of funds were forced to freeze investors’ money inside when coronavirus hit
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.’