EU Brexit: Property Fund - Rock Solid Investment

The EU Brexit decision will have a wide ranging 'economic' and 'social' adjustment period in the coming 2-5 years.  There will always be winners and losers. ProACT look at EU Brexit for Expats.

Solid Investment

Over many years people have chosen property funds as a 'low risk' investment of a lump sum.

However all investments can go down as well as up. Dont put all your eggs in one basket otherwise you could find your dreams smashed, as property funds lose liquidity and become a 'solid' investment for the wrong reason.

Post Brexit vote has seen half of UK property funds 'close' to redemptions from investors in UK commercial property.  International Commercial Investors feared for future values of UK commercial property and hastened to exit the property fund.

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Liquidity Frozen

This creates two issues for property funds managers.  When an investor wants cash, the fund pays out. By definition a property fund is invested in property, where does the cash come from? If the fund is not invested in property no profit is earned. Fund managers can invest more in property for high returns and support cash liquidity with bank loans.

When there is sudden large withdrawals from a fund, cash dries up. Complicated by the resulting 'forced sale' of property reduces value. More lending, or forced sales, both lead to losses.

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Winners and Losers

Those investors depending on capital withdrawals or income right now will lose out. They will find their fund frozen solid or face a stone wall with requests to draw funds. The only solution for managers and investors is time. Long term investors , will see poor returns short term but these will recover in the long term , 5 years or more. 

EU Brexit is a time of economic adjustment for all, in many economic and social ways. Property investors have there adjustment quicker than most.

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Sam Orgill ProACT Partnership - Tax Saving Expert
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