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UK property market peakes as average prices decline

The UK property market has peaked, and average prices are falling according to a property management firm.

Apropos by DJ Alexander Ltd has analysed official data and found that average prices in all parts of the UK (with the exception of Wales which continues to increase in average price) peaked between August and November of last year with average prices in London having reached their highest even earlier in July 2017.

All average property prices across the UK, England and Scotland peaked in August 2018 at £232,194, £152,411 and £249,127 respectively whilst in Wales the December 2018 average prices continued to rise reaching £161,845.

London prices reached their peak of £488,527 in July 2017 and have been below that level ever since and, in the latest month for data are 3.0 per cent below the peak.

The value of gross mortgage advances has grown to £73.5bn which is the highest level since Q4 2007. Of further concern is that the proportion of high loan-to-income (LTI) lending (loans above four times the value of annual income for a single buyer or above three times the annual income for joint buyers) has increased 1.7 per cent to 47 per cent with the share of loans with a loan to value (LTV) exceeding 90 per cent also increasing to 4.3 per cent.

The value of outstanding mortgages balances with some arrears increased for the first time since Q2 2016 in the fourth quarter of last year although still only accounts for one per cent of all balances.

David Alexander, joint managing director of Apropos by DJ Alexander Ltd, said: “Whilst there are concerns that the property market has stalled and is now falling back in most parts of the UK this is due to a number of factors rather than the enormous overheating of the market which occurred in 2007.

“London is undoubtedly suffering from a market which grew incredibly quickly and is now stabilising at a lower level. This will be because of individuals and investor worries over Brexit and continued economic uncertainty. The latest statement from the Chancellor that growth in the UK this year is slowing to its lowest level since 2012 will have done little to reassure the property markets.

“There is little doubt that the buy-to-let market has fallen back as smaller, more independent investors exit the market due to the enormous financial and regulatory changes which have occurred in the last couple of years. This will be taking some heat out of the market at a time when individual buyers may already be holding from commitment due to external factors.”

He added: “Although the value of debt is now at its highest level since Q4 2007 and high LTI lending is once again becoming a feature of the marketplace there is little sign of the same frenetic atmosphere which accompanied the 2007 property crash.”

Mr Alexander concluded: “Despite some of the gloom currently present within the market there are opportunities, there are possibilities for individuals and investors. It requires greater skill, a long-term attitude to the property market, and some courage to understand that property prices will always ebb and flow, but the overall direction is up.

“You need to take a medium to long term view to get the best out of a home or an investment. Short termism may sometimes win but as a rule it is a tactic which is likely to fail.”

Source: Scottish Legal

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Investors grab Brexit bargains among UK housebuilders

Daring investors are dipping their toes back into UK housebuilders, attracted by high dividend yields and low valuations even though they are seen as among the most vulnerable sectors in the event of a messy Brexit.

As Britain’s exit from the EU remains shrouded in fog, housebuilders have been top targets for short sellers betting on a fall in the shares, but recent data shows short positions have fallen and some investors are buying back in.

To those investors, Brexit fears and the perceived risk to housebuilders also give the potential for strong rallies. Indeed, British housebuilder stocks have risen 11 percent since their December low and Taylor Wimpey has shot up 30 percent since then.

“I like it when there’s a short. You can have good returns when there are disagreements,” said Fabrice Theveneau, head of global equities at Lyxor Asset Management in Paris, who has recently bought shares in some UK housebuilders.

“The guys who’ve been shorting the housebuilders made a lot of money on them… they could very quickly turn their positions.”

In the last thirty days, the level of short interest has fallen for most UK housebuilders, data from FIS Astec Analytics shows.

Shares in the UK’s biggest listed housebuilders fell between 26 and 33 percent in 2018 as housing data increasingly showed a severe slowdown in sales volumes and prices, blamed in part on the uncertainty surrounding jobs and growth after Brexit.

British property surveyors are the most downbeat about the short-term outlook for house prices in nearly eight years, a survey on Thursday showed, as buyers and sellers shy away from major financial decisions.

London and the South-East have led the slide in house prices and sales. Yet a Deloitte survey found construction in four regional cities is booming.

Investors are using that regional divide to guide their choices.

“We try to avoid those mostly focused on London, like Berkeley. We prefer Taylor Wimpey, Persimmon, and Barratt Developments,” said Lyxor’s Theveneau.


Data from FIS Astec Analytics shows short sellers are even differentiating between London-focused builders Berkeley and Crest Nicholson.

Crest Nicholson has seen short interest increase significantly, with a utilisation rate (percentage of total shares borrowed) as high as 32 percent.

Last year, Crest Nicholson pulled back from London, closing its office there in a bid to reduce its dependence on the UK capital’s faltering housing market where prices were falling and costs were rising.

“We have faced some challenges in London and with sales at higher price points where political and economic uncertainty has adversely impacted customer demand… this is likely to continue pending Brexit resolution,” it said in January.

The company which focuses on the south of England has moved into the Midlands in a push into more affordable areas, and has postponed opening its new South East division.

Rival Berkeley Group, which also has significant exposure to London, has meanwhile seen short interest fall since the Brexit vote.

Charlie Campbell, an analyst at Liberum, put this down to the housebuilder’s more international customer base which could insulate it from falling confidence among UK buyers.

Berkeley Group has sales offices in Dubai, Bangkok, Singapore, Hong Kong, Beijing and Shanghai.

Another strategy followed by some investors is to home in on stocks that could show more resilience in the face of slower sales and low buyer confidence.

Paul Mumford, fund manager at Cavendish Asset Management, owns Telford Homes because of its focus on building in non-prime, “up and coming” areas of London, and its policy of forward selling developments.

Mumford also owns Henry Boot, Daejan, and St Modwen, which he says are more insulated from the cyclicality of the housing market because they are more exposed to the commercial property market.


How much of the hard Brexit scenario is discounted in housebuilder shares is key to investors seeking to find value.

Redburn analysts say current valuations factor in a roughly 30 percent decline in EBIT (earnings before interest and tax) this year, which would imply a 5 percent fall in house prices and 10 percent fall in volumes. The analysts have no sell recommendations in the sector.

That is a far more benign scenario than the 35 percent fall in house prices over the next three years predicted by Bank of England governor Mark Carney if the UK exits without a deal.

There is no date yet set for a new vote on May’s Brexit deal, but share prices have been climbing despite the lack of any clarity.

“The big question is not what happens today but where are we in the middle of summer, is all this behind us?” said Liberum’s Campbell.

“If it is, then the shares are pretty cheap, but if we’ve just gone through a disorderly Brexit you could look back at the shares and at this point in time you might think we were all a bit over-optimistic.”

Source: UK Reuters

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Newport sees biggest jump in house prices

Newport, South Wales, saw the biggest jump in house prices of any UK town or city in 2018, Land Registry data revealed this morning (February 14).

Average property prices in Newport increased by 10.6 per cent to £182,505 in 2018 while Aberdeen suffered the worst fall outside London, dropping 6.5 per cent to £152,799, the latest official statistics showed.

The average growth rate across the UK was 2.6 per cent last year, according to analysis by Gatehouse Bank, with 318 (78.3 per cent) of all 406 local authorities reporting prices increased in 2018, while 88 (21.7 per cent) saw them fall.

Top 10 performing towns and cities in 2018

TOP TEN 2018
Location Dec 2018 Change YoY (%) Change YoY (£)
Newport £182,505 10.6% £17,477
Merthyr Tydfil £106,228 9.7% £9,401
Nuneaton £181,987 9.3% £15,512
Warrington £201,446 8.6% £16,031
Corby £186,631 8.3% £14,268
Stirling £187,620 8.3% £14,443
Leicester £175,250 7.6% £12,436
Liverpool £137,163 7.3% £9,286
Edinburgh £260,221 7.2% £17,378
Sheffield £168,128 7.1% £11,183

Ten worst performing towns and cities in 2018

Location Dec 2018 Change YoY (%) Change YoY (£)
Aberdeen £152,799 -6.5% -£10,708
Eastbourne £228,774 -5.9% -£14,324
St Albans £501,817 -5.1% -£27,031
Watford £350,868 -3.1% -£11,149
Conwy £159,589 -2.7% -£4,464
Blackburn £108,379 -2.3% -£2,535
Darlington £129,985 -2.0% -£2,602
Basingstoke £301,158 -1.9% -£5,815
Barrow-in-Furness £115,481 -1.7% -£2,028
Harlow £272,324 -1.7% -£4,712

Charles Haresnape, chief executive of Gatehouse Bank, said: “It was an unpredictable year for house prices in 2018 and in the end, although the market only just outpaced inflation on the whole, there were still some stand out performances.

“Increases of 10.6 per cent in Newport and 9.7 per cent in Merthyr Tydfil are pretty striking when you consider the political instability that has weighed on the UK since the Brexit vote.

“Poor performances like that seen in Aberdeen, which fell 6.5 per cent, are proof that the cocktail of economic uncertainty, lack of housing supply and a raft of buyer incentives and cheap borrowing are creating a heady mix of outcomes across the country.

“Of course, a strong increase in one year is no guarantee of future success. Indeed, only three places in 2017’s top 10 appear in 2018’s top flight, with first place Cambridge dropping to 259th of all local authority areas last year.”

Source: FT Adviser

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‘No deal’ Brexit prompts expectation of increase in demand for business loans

As predictions have emerged of an upsurge in borrowing demand from SMEs if a ‘no deal’ Brexit occurs, owners of small businesses are being urged to fully acquaint themselves with the terms of a personal guarantee backed loan, before signing on the dotted line.

Todd Davison, director of Purbeck Personal Guarantee Insurance said, “It is widely anticipated that there will be an increase in demand for loans as SMEs look to introduce additional working capital buffers in a bid to ride out any impact on business following a “no-deal” Brexit.

“Additional funding to aid cash flow may help to offset downturns in trade or disruption within the supply chain. But the reality is that most commercial funding will need a Personal Guarantee and this commitment should not be taken lightly.

“As the UK’s only provider of Personal Guarantee Insurance to SMEs, we would urge the Directors of SMEs to fully consider their options and the risks, particularly in the current uncertain economic climate.   It’s vital Directors seek independent advice, and ensure they have investigated what alternative funding may be available.  If a Personal Guarantee backed business loan is the right solution, they should ensure they’re comfortable with all the terms of the guarantee.”

Top facts to check before signing a personal guarantee for a business loan:

  • How will the lender enforce the guarantee?
  • Can the lender serve notice or seek payment on demand?
  • What exactly constitutes a default?
  • Do the terms allow for any remedy period upon default?
  • How will your net personal assets be assessed prior to the giving of the guarantee, and is this is likely to change?
  • Does the contract state that the lender must exhaust every other avenue before making demands on you?
  • Have you considered the cost of obtaining personal guarantee insurance?

Todd Davison concludes: “Personal Guarantees are likely to be requested by every business lender. Directors of small businesses should be clear on the terms of the guarantee, and should have contractual clarity on all eventualities. They should be as genuinely objective as they can about the financial prospects of their business and its commercial value too. It’s essential to remember that a Personal Guarantee is not a hypothetical assurance, creditors can and will enforce them.

“Because they significantly increase risk for the borrower, Personal Guarantees can cause enormous stress. It’s therefore advisable to get Personal Guarantee insurance against the risk that the Guarantee is called by a lender. It will offset any outstanding obligations called in under a Personal Guarantee. The level of cover is based on a fixed percentage of the Personal Guarantee the company director wishes to insure and this is dependent on whether the corresponding finance facility is secured or unsecured.”

Source: London Loves Business

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Housing market endures sluggish start to the year as buyer and seller confidence dwindles

The UK housing market has endured a slow start to the year as key activity measures for both buyers and sellers fell further in January.

Enquiries, sales and new instructions all declined in January as uncertainty continues to wear away at confidence, according to research by the Royal Institution of Chartered Surveyors (Rics).

New buyer enquiries fell for the sixth successive month in January, while demand slipped across almost all parts of the UK.

The figures revealed the number of new properties listed on the sales market also dropped to its lowest level since July 2016. Agreed sales also took a tumble, with the rate of decline gaining pace compared to the previous month.

Rics said forecasts for the coming three month remain gloomy, as uncertainty surrounding Brexit continues to take its toll.

But the long-term outlook is more positive, Rics said, with 16 per cent of those surveyed expecting sales to rise over the next 12 months.

Rics chief economist Simon Rubinsohn said: “Although some contributors to the survey have taken comfort from a better start to the year than anticipated, a larger proportion are continuing to find the market a difficult one in which to do business.

“Resolution of the Brexit negotiations is widely seen as critical to encouraging potential buyers back into the market, although whether that will be sufficient in London and parts of the south east where affordability remains stretched and the tax changes are most penal remains to be seen.”

The figures showed house price growth slowed for its four consecutive month, mainly dragged down by London and the south east.

The sluggish growth reflects the latest data from the Office for National Statistics (ONS) and the Land Registry, which revealed house prices rose at their slowest pace since 2013 in December.

But Rics said the lettings market has proved more robust, with tenant demand rising modestly in the three months to January. Despite this, new landlord instructions slowed for the eleventh successive quarter.

Source: City AM

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House price growth slows to six-year low

House price inflation slowed to 2.5 per cent during December, according to the Office for National Statistics.

This was the lowest annual rate of house price inflation since July 2013 and continued the slowdown seen in the housing market over the past two years.

The average UK house price was £231,000 in December 2018 – £6,000 higher than a year previously.

On a month-on-month basis, house prices only rose by 0.2 per cent between November and December.

Dilpreet Bhagrath, mortgage expert at Trussle, said: “Even with the slight increase in prices, it’s clear that Brexit nerves and uncertainty is still affecting the market. Not to mention the ongoing lack of supply, with more risk-adverse sellers staying put until the economic picture becomes clearer.

“That said, for new buyers, the current low interest rate climate coupled with the government’s commitment and extension of the help-to-buy scheme will offer further support for those hoping to get a foot on the ladder.

“For the slightly more cautious first-time buyers, opting for fixed rate mortgage deals might be favourable, giving complete clarity over how much your mortgage costs each month so that you can plan ahead.”

Steve Seal, director of sales and marketing at Bluestone Mortgages, added: “Slower house price growth is no doubt a reflection of potential buyers choosing to adopt a ‘wait and see’ approach before committing to the biggest purchase of their life – a home.

“To tackle this, lenders are offering near record low deals to reassure borrowers that there is still plenty of opportunity to lend.”

The lowest annual growth was in the North East, where prices fell by 1 per cent over the year to December 2018, followed by London where prices fell 0.6 per cent over the year.

House prices in London have now fallen from a peak of £488,527 in July 2017 to £473,822 in December.

Meanwhile house price growth was strongest in Northern Ireland, where prices increased by 5.5 per cent, and Wales, where house prices increased by 5.2 per cent.

The ONS said the increase in house prices in Wales was driven by strong growth in the south east of the nation, likely linked to the abolition of tolls on the Severn Bridge.

Despite the strong house price growth in Northern Ireland, it remains the cheapest area of the UK for property, with the average home costing £136,669 compared to £247,886 in England.

Source: FT Adviser

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North’s housing market remains buoyant, but signs of Brexit-related slowdown

THE north’s housing market remains among the best performing in the UK, but there are signs activity is slowing, according to new figures.

The latest RICS (Royal Institution of Chartered Surveyors) and Ulster Bank Residential Market Survey shows that Northern Ireland maintained its position as the part of the UK with the highest balance of respondents reporting rising prices.

The survey further points to a rise in new instructions to sell, indicating that the supply of homes coming onto the market has picked up.

However there are signs that activity in the local market is slowing down, with new buyer enquires falling for a second month in succession and newly agreed sales broadly flat in January after a December decline.

In the short-term respondents in the north expect house prices to continue on an upward trajectory in the next three months, however the outlook for sales over the same period is subdued.

Looking further ahead and there is an expectation among surveyors that sales activity will be higher over the year.

RICS residential property spokesman in Northern Ireland, Samuel Dickey said Brexit is affecting the local housing market.

“Across the UK, Brexit is affecting surveyor confidence, and whilst sentiment in Northern Ireland has been stronger than other regions for some months, there is now some more caution evident in the market,” he said.

“However, whilst Northern Ireland surveyors suggest that sales activity may be lower in the three months ahead, they are much more positive when looking a year down the line, suggesting that they think any impact on the market from Brexit will be short-lived.”

Terry Robb, head of personal banking at Ulster Bank added:

“A lack of supply has characterised the Northern Ireland housing market in recent years, so a rise in new instructions is welcome and should provide more choice for buyers. Whilst it is perhaps not surprising that the wider environment is tempering sentiment amongst potential buyers at preset, surveyors in Northern Ireland remain confident about the market in the mid-term.”

Source: Irish News

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UK house price growth slows to lowest level since 2013 as uncertainty rattles market

House price growth fell to its slowest pace in almost six years in December as uncertainty continues to weigh on the housing market.

UK house prices rose just 2.5 per cent year-on-year, marking the slowest annual growth since July 2013, according to new figures from the Office for National Statistics (ONS) and the Land Registry.

Growth was dragged down by a 1.1 per cent drop in prices in the east of England, while prices in the south also remained sluggish. Prices in London rose just 0.1 per cent.

The latest figures take the average property value in the UK to £230,776, while London retains the top spot for house prices, with an average value of £473,822. Across the UK, prices ticked up just 0.2 per cent month-on-month.

Mike Hardie, head of inflation at the ONS, said: “House prices continued to grow, albeit at the lowest UK annual rate since July 2013, with growth in the north east and London lagging behind Northern Ireland, Wales and the West Midlands.”

The figures are the latest reminder of the challenges facing the housing market, as both buyers and sellers have been impacted by economic and political uncertainty.

Data published yesterday by Lon Res showed prime property prices in the capital fell 5.7 per cent year-on-year in the fourth quarter.

More than 50 per cent of prime properties had their asking price slashed before being sold, the research stated.

Marc von Grundherr, director of estate agent Benham and Reeves, said the slowing market has been largely impacted by the decline in the value of flats.

“Whilst Brexit remains farcical, we should expect some volatility of course,” he said. “But our view is that given the relatively robust London market, there is cause for significant optimism in both values and transactions from the second quarter onwards.”

But Howard Archer, chief economic adviser to the EY Item Club, warned of continued difficulties as Brexit draws nearer.

“If the UK leaves the EU at the end of March without an approved Brexit deal, house prices could well fall by up to five per cent in 2019 amid heightened uncertainty and weakened economic activity,” he said.

Source: City AM

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‘It’s happening again’: UK property funds adjust pricing ahead of Brexit

Asset managers are reportedly getting tetchy about scrutiny of the Investment Association UK Direct Property sector in the lead up to Brexit despite the fact they argue they are better placed to deal with redemptions than summer 2016, when the UK voted to leave the European Union.

In December, the sector faced £315.6m outflows – the worst redemptions since July 2016, when a raft of funds gated due to a mass exodus of client money.

The Threadneedle UK Property Authorised Investment and Kames Property Income funds both switched to bid pricing in December, essentially wiping out returns for the year for investors exiting the funds. However, the funds attracted £10.8m and £2.6m respectively in a month where all other funds, bar MGTS St Johns High Income Property, faced outflows ranging all the way up to £92.6m for the Janus Henderson UK Property Paif.

Portfolio Adviser understands concerns have been raised in the industry that media coverage of liquidity positions could trigger a run on funds, despite the fact funds are raising cash levels and the market is more liquid than 2016.

The Financial Conduct Authority made headlines this month when it was revealed the regulator is monitoring property funds daily for liquidity.

UK property fund returns since Brexit

Fund Performance
Scottish Widows HIFML UK Property 28.85%
TIME Investments Freehold Income Authorised 25.94%
Janus Henderson UK Property PAIF 17.25%
L&G UK Property 15.28%
Sector: IA UK Direct Property 13.68%
TIME Investments Commercial Freehold 13.47%
Kames Property Income 12.93%
Royal London Property Inc 10.82%
BMO UK Property 2 Inc 10.72%
MGTS St Johns High Income Property 10.47%
Standard Life Investments UK Real Estate 9.89%
Aberdeen UK Property 8.85%
M&G Property Portfolio 8.15%
Threadneedle UK Property Authorised Investment 7.99%
Aviva Inv UK Property 7.30%
Source: FE Analytics for period between 24 June 2016 to 12 February 2019

‘It’s happening again’

In early July 2016, less than two weeks after the Brexit referendum, Standard Life, Aviva Investors and M&G gated funds followed shortly after by Columbia Threadneedle and Janus Henderson. Investors pulled £5.7bn from the sector in the period from January to July 2016, according to Morningstar Direct.

“It’s starting to happen again,” says Morningstar director for manager research ratings Jonathan Miller about December outflows and pricing adjustments. He attributes recent adjusted pricing at Kames and Threadneedle to outflows and “presumably a feeling that their rainy-day cash, part of keeping their powder dry to meet redemptions, wouldn’t suffice”.

Brexit uncertainty is largely cited as the driving force behind investors pulling money although other factors have compounded outflows. “Property managed a respectable 7.5% total return over the year so it seemed the investment community did trim quite aggressively,” says Architas investment manager Jen Causton.

She expects funds in the sector would have to gate if there is a no deal Brexit.

Chelsea Financial Services managing director Darius McDermott points to a slowing UK economy as a poor environment. “When the UK is slowing down, commercial property is not a go-to asset class. It’s quite correlated to the economy.” UK GDP growth slowed to 0.2% in Q4 2018 and the economy contracted in December, the Office for National Statistics this week revealed.

Total assets in the sector have shrunk from £14.0bn in May 2016, in the midst of outflows but ahead of the Brexit vote, to £11.9bn in December 2018, the last date for which Morningstar Direct has data.

UK Direct Property funds – AUM pre-Brexit vote versus now

Fund May 2016 December 2018
M&G Property Portfolio £4.8bn £3.7bn
L&G UK Property £2.5bn £3.3bn
Aviva Investors UK Property £815.0m
Janus Henderson UK Pty PAIF £1.6bn £2.8bn
BMO UK Property £305.0m £554.4m
Scottish Widows HIFML UK Property £479.1m £446.3m
SLI UK Real Estate Platform £608.0m £438.0m
Royal London Property £399.5m £408.4m
Aberdeen UK Property £625.5m £427.6m
Kames Property Income £203.4m £315.1m
Threadneedle UK Prpty Authrsd Invmt £270.9m £304.1m
TIME Freehold Inc Authorised £289.8m
MGTS St Johns High Income Property £38.9m £111.9m
VT Redlands Prpty £96.4m
Source: Morningstar Direct

Adjusted pricing wipes out returns

Architas holds L&G UK Property or Kames Property Income funds in its multi-manager range and a handful of investment trusts for more specialist exposure, like doctor surgeries and ecommerce.

“One of the funds we invest in moved to a bid price and it effectively wiped out last year’s returns,” says Causton. “You crystallise that if you come out of the fund. It does affect the performance quite a lot, particularly when returns are quite hard to come by.”

Kames and Threadneedle were the worst performers in 2018 falling 2.6%, the only funds with negative performance, compared to 3.9% gains in the IA UK Direct Property sector. In the period from 24 June 2016 to the end of November 2018, before the price adjustment took place the Kames fund returned 19% and Threadneedle delivered 15.1%, both outperforming the sector return of 13.5%.

Chase de Vere favours open-ended funds for its bespoke portfolios and discretionary models. Bid pricing is part and parcel of investing in the sector, says research manager Justine Fearns. “If you can time it right, or get lucky, then all good and well but if you are investing for the longer term then ultimately it should be the investment case that is the driver of purchases and redemptions, although there could be other considerations to take into account.”

IA UK Direct Property returns in 2018

Fund Performance
TIME Investments Freehold Income Authorised 8.07%
Scottish Widows HIFML UK Property 7.84%
TIME Investments Social Freehold 5.21%
TIME Investments Commercial Freehold 5.00%
L&G UK Property 4.65%
Standard Life Investments UK Real Estate Platform 4.57%
Aberdeen UK Property 4.36%
M&G Property Portfolio 4.17%
Janus Henderson UK Property PAIF 4.10%
Sector: IA UK Direct Property 3.91%
BMO UK Property 3.66%
Aviva Inv UK Property 3.65%
Royal London Property 3.40%
MGTS St Johns High Income Property 3.37%
LF Canlife UK Property ACS 3.30%
VT Redlands Property Portfolio 1.94%
Kames Property Income -2.57%
Threadneedle UK Property Authorised Investment INI GBP TR in GB -2.57%
Source: FE Analytics

Cash allocations march upwards

Kames Property Income fund co-manager Richard Peacock tells Portfolio Adviser two sales due to complete this week are due to take liquidity from 17.3% to 19%.

“Given the market outlook we are targeting a liquidity position of around 25%. With return prospects slowing, holding an elevated cash position will have less of a dilutive impact on fund performance,” Peacock says. The fund has had bid pricing in five of the 59 months since launch, he adds. “By comparison, the majority of the peer group swung to bid price in 2016 due to outflows and have remained on that pricing basis ever since due to continued outflows.” Kames introduced a 10% pricing adjustment to the fund following the Brexit vote.

Threadneedle holds 12.3% in cash “the upper end of its liquidity corridor”. “Whilst this plays an important role in the context of meeting potential redemptions, as markets stabilise it can provide a valuable buying opportunity as well,” a spokesperson says.

The M&G Property Portfolio is holding cash above its 7.5% to 12.5% range at 15%, which it describes as a prudent measure to manage any client flows during uncertain market conditions.

It has been reducing retail assets in a similar move to Janus Henderson. Ainslie McLennan, co-manager of the Janus Henderson UK Property Paif, says: “Our long held view has been that the retail sector, particularly traditional retailers and high street assets, would come under pressure.” Instead they are seeking an “appropriate, diversified mix of assets we believe to be best suited to the conditions ahead”, McLennan says.

Fearns lists L&G UK Property as her fund pick for the sector. The team has been engaging with clients regularly to help its liquidity management and it was one of the few funds that did not gate in the aftermath of the referendum, she says. Chase de Vere prefers property funds to hold cash over property securities for liquidity due to it being the more stable and liquid asset class, she says.

LGIM did not wish to comment when contacted by Portfolio Adviser but it has the highest cash allocation in the sector at 25.5%, according to FE Analytics. It made a 15% ‘fair value adjustment’ to L&G UK Property in the aftermath of the EU referendum.

In contrast, Royal London Property holds 8%. Head of property Gareth Dickinson highlights that the fund, which requires a £100,000 minimum investment, consists of a” relatively small number of institutional investors” and redemption requests require three months’ notice, which influences the shareholder base. The fund has not adjusted pricing since the Brexit referendum.

More liquid market

While redemptions are picking up, asset managers say the UK property market is more liquid than the lead up to the Brexit referendum.

“It is difficult to make a simple comparison between the two periods and the impact on liquidity management,” says Peacock, who describes the referendum as a binary risk event whereas recent outflows have been spread over several months.

He adds: “The levels of sales completed by the peer group already is encouraging and demonstrates that we still have a liquid market for those investors looking to sell which is a contrast to Q3 2016 when transaction volumes fell and liquidity dried up for many funds.”

Outflows may actually benefit the sector, according to Willis Owen head of personal Adrian Lowcock. “All that hot money is now out; all that shorter-term money is now out. What you’ve got left should be longer-term investors.”

However, outflows leave funds in the position of having to sell assets to increase cash positions, Lowcock says. Willis Owen currently favours passives for property exposure, such as the iShares Global Property Secs Equity Index and L&G Global Real Estate Dividend Index.

Investment trust versus open-ended debate rings on

Morningstar’s Miller says pricing adjustments highlight “what can happen overnight given the illiquidity in the space”. “We believe there’s a mismatch in having daily dealing for bricks and mortar property funds, given the illiquidity profile.”

McDermott says he currently only holds property via specialist investment trusts, but despite the swings that can occur when property funds adjust pricing, he warns investment trust volatility can be higher.

He says investors can only be penalised to the extent of the property fund’s spread, which is “typically 5%, sometimes 5.5%”. “Investment trust discounts can go much wider than that. After the Brexit vote when all the property sector was under stress, some of the investment trusts were trading at 20 or 30% discounts. You could get your money back but you were getting it back at 30%,” he says.

Association of Investment Companies data shows the Schroder Real Estate Investment trust discount was 19.7% on 30 June 2016 compared to a 1.6% premium three months earlier. It was trading at a discount of 16.3% at the end of December 2018. The UK Commercial Property Reit was the next highest discount at the time of the Brexit vote at 17.1%. It now trades at a 10.9% discount.

Source: Portfolio Adviser

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UK economy to make modest post-Brexit recovery if deal agreed – economists

UK economy will barely grow in the run-up to Brexit amid concern the UK will leave the European Union without an agreement, but if there is a deal there will be a modest post-divorce upturn, according to economists polled by Reuters.

Economists mostly said a free-trade deal between the two will be made and expectations that Britain will leave on March 29 without an agreement have barely changed over the past month.

Growth slumped to 0.2 percent last quarter as Brexit worries hammered investment by companies and a global economic slowdown weighed on trade. The February 8-12 Reuters poll said it would expand at the same rate this quarter.

Polls conducted by Reuters since the June 2016 referendum decision to leave the EU have consistently said a no-deal Brexit would be the worst outcome for the British economy.

The chance of a no-deal Brexit nudged up only to 25 percent in the latest poll from the 23 percent given in January and, with a deal expected, growth is forecast to accelerate to 0.3 percent next quarter and to 0.4 percent in the third.

“If there’s a silver lining from the mounting signs that the uncertainty caused by Brexit is holding back GDP growth, it’s that the economy could enjoy a decent rebound if a Brexit deal is agreed,” said Paul Dales at Capital Economics.

The likelihood of a recession in the coming year held firm at 25 percent and the probability of one in the next two years at 30 percent.

“Although the economic headwinds have increased in recent quarters, the most likely way in which a recession will be triggered is if Brexit goes badly wrong,” said Peter Dixon at Commerzbank.

Prime Minister Theresa May is trying to convince the bloc to amend a divorce deal that she agreed with it in November but that was rejected by her own parliament. As it stands, the UK will leave the EU in 44 days without a deal.

May told British lawmakers from all parties on Tuesday she wanted them to back the Brexit deal she is aiming to strike, citing the need to pass further legislation to prepare for Britain’s exit. May said she believed she could reach a Brexit deal parliament could support.

European Union Brexit negotiator Michel Barnier said on Monday the bloc would agree to tweak the political declaration on EU-UK ties after Brexit that forms part of the exit package.


As in all Reuters polls since late-2016, the vast majority of economists said the two sides would settle eventually on a free-trade deal.

Holding again in second place was Britain being a member of the European Economic Area, paying into the EU budget to maintain access to the EU’s single market.

The third and fourth spots flipped, with Britain leaving without an agreement and trading under basic World Trade Organization rules now in third place and Brexit being cancelled last.

Apart from January’s poll, Brexit being cancelled was in last place every time Reuters has asked.

The Bank of England said last week Britain faces its weakest economic growth in a decade this year, but also said interest rates would eventually rise if an EU divorce deal is done.

Other major central banks have signalled they will hold off on raising borrowing costs but BoE Governor Mark Carney stuck to his message that gradual and limited rate rises are coming if a no-deal Brexit is averted.

Economists polled by Reuters took him at his word and medians suggest a 25 basis point increase to Bank Rate to 1.00 percent would come in the fourth quarter, later than thought last month. Another 25 basis point was predicted in the second half of next year, also later than previously thought.

“The combination of Brexit uncertainty, slowing world – and UK – economic growth and lower forecasts for inflation suggests a far slower normalisation of policy,” said George Buckley at Nomura, who pushed back his expectation for the first hike to November from May.

Carney said on Tuesday a modest tightening of monetary policy over time would likely be sufficient to achieve the Bank’s 2 percent inflation target. The poll pegged inflation to average the target this year and next.

Source: UK Reuters