David Prosser: More property investors get bricked in

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Outlook Standard Life's announcement of withdrawal restrictions for more than 200,000 savers in its commercial property funds is yet another blow to those who thought bricks and mortar would prove a golden goose. Add in savers at Norwich Union, which announced a similar move earlier this month, and close to half a million people have just been told they can't have their money back without big delays.

The problems in the property fund sector are going to get much worse before they get better. According to IPD, the property specialists, the typical commercial property fund lost 32 per cent of its value last year, including an 18 per cent collapse in the final three months of the year alone.

It's not difficult to work out why. When commerce is shrinking, commercial property is not much in demand. Rents fall back and capital values plummet. Now is not a good time to own a block of offices, a retail mall or an industrial warehouse.

For savers with money in property funds, the structure of their investment intensifies the problem. Property fund managers do keep some of their assets in cash, in order to pay out to people who want to withdraw. But if too many people want to cash out at the same time – because of a property market slump, say – the fund has to start selling off its properties to fund their demand. Forced sellers have it tough at the best of times, let alone in a market which is heading south as quickly as this one.

What can savers caught up in these funds do? The short answer is not a lot – if they possibly can, they must now sit out this recession and try not to worry about the theoretical losses being incurred.

Meanwhile, the fund management companies that launched so many of these products a couple of years ago ought to take a long hard look in the mirror. They were cashing in on a fad for property investment at a time when the bubble already looked likely to pop. Thousands of savers were encouraged to invest on the basis that commercial property, both in this country and internationally, was somehow immune from the normal rules of investment and are now paying the price for buying the argument.

By the way, some of the big names in the real estate investment trust sector – Reits were launched two years ago this month – also seem to have bought the property hype in the same way, with levels of leverage a major problem across the piste. Expect this sector to be the next port of call for the storm that shows no sign of blowing itself out.