Aviva suspends property fund until 2017

Aviva Investors has put investors on notice that its £1.8 billion UK Property trust is likely to remain suspended until the first quarter of 2017.

In a note to investors the firm said that due to the post-Brexit market uncertainty it will probably take more time than usual to sell properties held in the fund to raise the cash needed to meet redemption requests.

Aviva said the fund is likely to be suspended for a period of "at least six to eight months".

"Property sales may be more difficult to execute in the current environment due to market uncertainty," explains the firm. "In disposing of properties, we need to ensure we act in the best interests of all investors. The suspension is therefore likely to be in place for a period of at least six to eight months from the date of suspension."

Tough times ahead

Aviva suspended its fund at the start of July - joining Standard Life's £2.9 billion UK Real Estate fund and the £4.5 billion M&G Property Portfolio.

Henderson, Columbia Threadneedle and Canada Life have also taken measures to prevent investors from getting their money back.

The funds' properties have well-known tenants who'll keep paying the rentAberdeen, which took a different tack, imposing a 17% dilution levy on investors who cashed in their holdings, has cut its exit charge to 1.25%, which was the level in place prior to the EU referendum on 23 June.

Legal & General also moderated the markdown of its commercial property fund from -10% to -7.5% at the start of August.

Investors have rushed to sell out of commercial property funds amid fears that June's Brexit vote will have a negative impact on both commercial and residential property prices, particularly in London. In such times it is difficult for open-ended commercial property funds to meet withdrawals.

But the consensus view, from a range of market commentators, including financial advisers and wealth managers, is that the current situation is not a repeat of 2008.

Despite the predicted tougher times ahead, it is worth pointing out that the buildings owned by the commercial property funds, particularly the bigger players with £1 billion or more in assets, tend to have well-known tenants, such as supermarket stores including Tesco and Waitrose. So even if the value of the buildings declines, the rent should keep on being paid.

This article was originally published by our sister magazine Money Observer here

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.