07/07/16“Lights go out…Walls came a tumbling down……”
Lets be honest, no other blogger will combine a Paul Weller lyric with the bible, will they?!! After Brexit, I’m wondering how many of us thought this would happen, walls tumbling etc…But hang on? ‘Property Investment Funds are being suspended’ I hear you say? ‘is that not the walls come a tumbling down?’……
Hence, why like buses, I thought I’d write another blog. As always, my blogs are just a comment, thought or view-not actual advice.
Property-that great stalwart of British wealth. I can touch it, see it, feel it and live in it, or get others to live in it & pay me for the privilege. I can own properties that people work in, that I work in-because after all, ‘You can lose on property, can you?’ and ‘You can always sell a property and get the cash, or borrow from the bank against it.’
To be honest, a lot of people I’ve met over the years have this viewpoint. But when we look closer, we genuinely have to consider property as risky or as safe as any investment. I mean, you can’t break a brick off your home, go to Waitrose, get a cartful of shopping and present the brick in exchange, can you? Investing in property has to be given careful consideration, because in order to sell, you need a buyer and that buyer has to be able to get credit, or have the cash. Now we have been seeing falling values in houses at what I would call, the top end (£1m+) for some time. This is now ricocheting down-albeit slowly. Locally here in Brampton, I’m seeing houses up for one figure, then four weeks’ later, the price has reduced £10k and that’s on £250k priced properties. Now true, the property prices were -in my view-bonkers already, but some sort of reality check has been taken place over the last few months and ‘Brexit’ has exacerbated it.
Now go from a 3 bed semi in Brampton and zoom out to the top and bottom of the country, from one bed flats in Central London to sprawling countryside mansions (probably cost the same!) add in some natural market ebb & flow together with the results of Referendum, together with the uncertainty that brings and if you’re invested you might want to switch funds to areas that are ‘safer havens’ life cash, governments bonds/Gilts, Gold etc. Most Property funds hold cash or shares for this reason, but probably no more than 20% of its total value, again, catering for the natural swing of things. But-if huge swathes of investors want to exit, that creates a huge problem. Property funds can invest in commercial premises, big, well known iconic buildings, as well industrial estates etc. neither of which are easily sold and, if too much property comes onto to the market at one time, we all the effect this has. So rather than create such issues, quite a few Property investment funds (Standard Life, Aviva & Columbia) have suspended withdrawals for 28 days, whilst Aberdeen, L&G & Canada Life have added a fair value adjustment of somewhere between 15% & 17%-meaning if you to cash in, that’s the adjustment that will be made on your encashment.
But lets not hyperventilate here…No horns are being blown…no walls are tumbling….property continues to be a low volatile investment and when investing via a property fund, you get all the income, but no 3am phone call to say the boiler has busted, or no tenant refusing to pay rent or, squatting. The L&G Property fund, for example, is £2.3BN and invests (as at June 2016) in over 100 UK Commercial properties and over the last couple of years, its returned just over 12% during that period (figures from FE Trustnet July 2016-values not guaranteed, investment returns and their values-can go down as well as up), so lets not rule out property just yet.
Most of my clients are recommended to have no more than 5% invested in property funds; which means they can still freely access 95% of their money, should they so desire. It also worthwhile noting that property funds such as First State, HSBC and hearthstone are, as I write, still trading normally, as some of these funds have exposure to property investments outside the UK and Europe.
We knew Brexit would bring uncertainties…At the Smaller end of the FTSE-the 250 index for example, we are seeing losses. These are the companies that would traditionally trade in Europe and as such, as well as the Brexit, they are also feeling the double whammy of currency exchange. The FTSE 100 contains huge multi nationals, who are dealing internationally and are not so affected by the Brexit per se.
So what does this all mean?
Diversification is key-ensure your current investments are well spread out and ready to deal with this unsettling timeframe, that as yet, has no timescale. With Interest rates possibly being cut, cash is clearly not suitable as an investment strategy- consider phasing any new investment you are looking to do-this could be a rare time when ‘Pound/cost averaging-buying into investments at different time slots to take advantage of the up and down movement of markets’- could work.
Above all, keep in mind the timescale you originally wanted to invest for and if you are thinking about withdrawing funds-think about tax implications of doing so, where would you put it and is it really the best thing to do-alternatively, pick up the ‘phone and talk to an Independent Financial Adviser who is ready to listen and help. If you’ve read this and previous posts, you may already know of someone you can call :)
Have a great day,