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Expert comment on real estate investment funds being suspended PDF Print E-mail
Friday, 08 July 2016
Dr Daniele Bianchi, an Assistant Professor of Finance, who researches financial econometrics, asset pricing and commodity markets at Warwick Business School said: "The liquidity-driven decision to suspend trading in real estate investment funds echoes somewhat the early stage of the great financial crisis of 2007/08.

"In that period, liquidity in the real estate market evaporated completely in a short period of time as a consequence of the growing problems in the subprime mortgage market. Although the economic situation is very different now, there are similarities in the liquidity shock the financial industry is facing.

"There is a general consensus that the pound will keep falling against the US dollar and the euro. Current forecasts for sterling are in the range of reaching $1.10 to $1.20 by the end of the year.

"The UK real estate market, especially for commercial real estate, heavily depends on foreign investments, with more than 40% of the value of total transactions due to foreign capitals inflows. A sharp fall in the pound and worries related to the future economic prospects for the UK in the aftermath of Brexit, have been generating increasing outflows from publicly-traded real estate funds.

"Withdrawals can put a strain on open-ended real estate investment funds. Unlike other asset classes such as equity, fixed income and commodities, holdings in commercial or residential properties cannot be liquidated quickly to meet investors' redemptions.

"On the other hand, cash buffers appear to have been sharply eroded given the size of investment outflows. This is generating a lack of liquidity which has seen suspended trading in several real estate funds over the last few days."
 
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