UK Housebuilders and Real Estate Investment Trusts (REITs) are delivering a surprise bounce this morning despite a seventh fund saying it had bolted its gates to investors wanting to cash out. This takes the value of frozen real estate funds to more than half of the sector’s £25bn total; both a good and bad thing. On the one had it’s like saying ‘don’t panic’, which simply makes investors want to cash out pronto for fear of being last out with the worst price. On the other hand it’s cleverly avoiding unnecessary selling pressure, meaning little has changed.

The decision to lock-in investors comes in response to rising demands to abandon bricks-and-mortar with investors fearful of the Brexit impact on the UK’s precious property market. However, with the liquid portion of the funds (cash + REIT shares) having been used up so quickly, fund managers have been obliged to call ‘STOP’ for fear of becoming forced sellers of the property they own at distressed prices, putting unnecessary pressure on real estate values. Investors may well remain concerned about the Brexit fallout, but the prompt action by fund managers who find themselves in a difficult position again (this happened in ‘07 and’ 08) is likely helping prevent a self-fulfilling prophecy of a market crash playing out.

So long as nobody’s a forced seller, commercial property values should hold up. Net asset values, fund prices and REIT shares should thus too. And as panic dissipates, access to the funds for redemptions will resume. But patience is required. Perhaps in the interim, investors (likely also owners of property, which they are not putting up for sale) will see the error of their ways with their knee-jerk reaction being simply a reminder of the short-termism that has resulted from a decade of crises, investors trying to second guess others and avoid the unavoidable troughs we must weather over the long-term rather than sitting tight and riding it out. Property is still a long-term thing isn’t it?

Mike van Dulken, Head of Research, 7 Jul