EU vote leaves funds fighting to halt redemptions

Valuers have begun using RICS Red Book guidance VPGA9

UK property funds are in a state of flux as they struggle to determine fair valuations following the UK’s decision to leave the European Union.

As a result they have had to take measures to try to prevent mass redemptions. 

Valuers have begun using  RICS Red Book guidance VPGA9, known as the certainty and uncertainty clause, to caveat valuations during uncertain times and when not enough evidence exists for accurate valuation.

This could have a knock-on effect for retail property funds, where unit pricing is determined through property valuations.

If values are artificially held up through delay and uncertainty, this could trigger a flood of redemptions among investors exiting investments before property prices decline. During the 2007-08 downturn there was a run on retail funds that resulted in forced sales.

Earlier this week, a number of funds cut pricing for their open-ended funds. Henderson cut its UK Property PAIF prices by 5%, saying: “There was less conviction surrounding current prices in the property market and this has been communicated to us by our independent valuers (CBRE).”

Legal & General said: “In the interest of treating customers fairly and until the independent valuation reports can reflect any post-referendum transactional activity, we have made a fair value adjustment in today’s pricing.”

Others, including M&G, have moved from monthly to weekly valuations.

“It would be easy to downgrade all our NAV forecasts immediately but this would be done with little information and would be a knee-jerk reaction to justify share price moves,” said Miranda Cockburn, managing director at Stifel, on the outlook for listed real estate.

Both the IPD monthly and quarterly property indexes, used for benchmarking the UK’s commercial property market, receive valuations at the end of June and come out in July.

However, valuers have suggested that no impact is likely to show up until August when IPD’s next UK monthly property index is published, due to a lack of comparables in the immediate aftermath of the vote.

According to one valuation expert, too much uncertainty still surrounds the market, making it impossible to determine accurate pricing.

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