Standard Life has announced it has suspended dealing in its UK Real Estate fund, following a rapid increase in redemption requests as a result of the Brexit vote. 

Investors won’t be able to buy or sell units in the fund until further notice, while the managers look to raise cash by selling off some of their portfolio. Standard Life has taken this action in order to protect investors who wish to remain in the fund, who could otherwise be negatively affected by fund liquidations. The move follows downward price adjustments across the sector, and may be followed by similar actions by other funds in the sector.

Laith Khalaf, Senior Analyst, Hargreaves Lansdown: ‘Property funds are clearly under pressure as a result of the Brexit vote, and we could now see a new wave of investors being unable to liquidate their property funds quickly, which we last witnessed during the financial crisis. This is part of the problem with investing in open-ended property funds, and one of the reasons we don’t recommend them to investors. Property does offer diversification, and a reasonable yield compared to government bonds, but investors must be willing to accept high costs, and a lack of liquidity when the market turns down.

Closed-ended property funds at least provide investors the chance to sell out during market upheaval, though widespread selling serves to depress share prices and widen discounts in times of stress. Indeed there are currently a number of closed-ended property trusts trading at discount in excess of 10%. However, being closed-ended does at least means the manager does not have to liquidate properties at a time when everyone else is looking to do the same.

Given the outflows the sector seems to be experiencing, this could well put downward pressure on commercial property prices. The risk is this creates a vicious circle, and prompts more investors to dump property, until such time as sentiment stabilises. Continued low interest rates in theory provide support for commercial property, because as prices fall, yields become even more attractive. However at the moment, investors appear to be leaving the sector, rather than buying in.’