You may have heard over the last few days that three major property investment funds operated by Aviva, Standard Life and M & G have been suspended, as investors seek to quickly withdraw funds. This indicates that the fund managers concerned are going to have to sell parts of their portfolios fairly quickly to restore sufficient liquidity to meet investors withdrawal demands.
The impact of this on the wider market remains to be seen. The property held by these huge funds is likely to be large quality property holdings with strong tenant covenants in good locations, and the quantum of such likely to be at a level that mostly institutional investors will seek to acquire rather than the smaller investor. Nevertheless, as the effect of this “offloading” cascades and transmits to the smaller/lower levels of the market, we think we will see some impacts on yields and values over the coming months ie. likely increase in real yields & reduction in prices & values.
It is also possible (some might say) that there is going to be a reduction in Bank of England base rate – to 0.25% or lower. The ten year swap rate and therefore fixed interest rates have already fallen below 1% as the government’s 10 year gilt yields collapse.The real return to many property investors is the difference between rental yield, and the cost of debt for their property acquisitions. The combination of increased yield and lower Bank lending rates may therefore create some great opportunities for Savvy investors to make acquisitions using ultra low borrowing costs.
Here at Key we would be delighted to consult with any property investors who would like to discuss matters and in particular the opportunities to borrow money at some of the lowest rates available.