M&G property fund remains suspended as property market stalls


With lockdown life continuing in the UK and the property market having all but ground to a halt, investors won’t be surprised that all physical commercial property funds remain closed. With potential buyers unable to view properties or survey them the commercial property market isn’t going anywhere, which means the valuers of the underlying assets don’t have enough certainty about what property funds’ holdings are actually worth to be able to attach a price to them.

In order to improve the cash position of the fund, M&G needs to offload properties and says it has almost £200m of property under offer, but warns there is ‘no guarantee’ that these transactions will actually happen – until then it can’t build up cash reserves and so can’t re-open for investors.

This isn’t likely to be a problem solved overnight, particularly when you consider that even once lockdown restrictions are eased and the property market can pick-up again a number of businesses will have failed and no longer need premises while the future of office space has a large question-mark over it as more people adopt working from home practices.

M&G has also warned of a hit to income, as it collected less rent in March – a trend that is likely to continue into the summer. This is another blow to income investors who have already been hit with dividend cuts across the stock market.

Considering the environment, investors will also face a sharp reduction in the value of the assets when the funds do re-open. Currently direct property funds are only down around 3% year-to-date, but many real estate investment trusts are down a much sharper 25% to 50% and trade on wide discounts to net asset value. As a result, investors in the suspended funds should brace themselves for potential sharp falls in values once property transactions pick up and valuers have a sense of how much commercial properties are now worth in a very different economic environment.

Read the update on the suspension of M&G's property funds here.

These articles are for information purposes only and are not a personal recommendation or advice.

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Written by:
Ryan Hughes

Ryan Hughes is Head of Active Portfolios at AJ Bell. He has 20 years of experience in finance and investments and started his career working as a financial adviser before becoming an investment analyst and discretionary fund manager as well as twice being named one of the most influential financial advisers in the UK. In 2006, Ryan joined Skandia Investment Management as a fund manager, sitting on both the investment committee and global asset allocation committee before then joining Apollo Multi Asset in 2013. In October 2016, Ryan joined AJ Bell to help establish the investment research capability.