Legal & General has announced a reduction of the fair value adjustment to its property fund from -15% to -10%. This led to the fund price rising by 4.3% on Friday.
L&G noted it is still difficult to price in the Brexit vote, but said conditions have stabilised since 6 July when the fair value adjustment was taken to -15%.
In another encouraging sign of life in the UK commercial property market, British Land has announced it has exchanged contracts on the £400m sale of Debenhams’ flagship Oxford Street store in the weeks following the Referendum, and has agreed 17 long term retail leases at 9.5% ahead of the Estimated Rental Value.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Property funds are likely to exhibit extreme volatility in the current environment, as valuers seek to get a handle on what the Referendum result has actually done to the UK commercial property market.
“It’s probably fair to say there are lots of fingers in the air at the moment, and fund groups are doing the best they can to keep up with developments.
“The reduction in the fair value adjustment isn’t an indication of a reversal of flows into the property fund sector, rather it’s a moderation of the mark-down made to the underlying property portfolio in the aftermath of the Brexit vote.
“It’s a risky business buying or selling property funds at the moment, while prices are bouncing around so much without any warning, and may turn out not to be truly reflective of the underlying market.
“Once again this serves to demonstrate the limitations of open-ended commercial property funds, and investors need to make sure they are willing to accept these shortcomings before diving in.”
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