UK removes 'valuation uncertainty' clause from frozen property funds

UK removes 'valuation uncertainty' clause from frozen property funds

Real estate funds across the UK are set to be unlocked following a recommendation by an industry forum this morning to lift so-called material uncertainty clauses.

The UK Material Uncertainty Clauses (MUCs) was introduced in March this year to address concerns that the propery market (and its holdings) could not be accurately valued while the sector was essential at a standstill.

Yet according to a statement this morning, the Royal Institution of Chartered Surveyors (RISC), which set up an industry forum on the matter, judged that the real estate market has revived enough for warnings on valuation uncertainty to be removed for commercial property in the UK.

The problem funds have is working out how big this backlog is."

The RISC body this morning recommended a "general lifting" of the MUCs across "all UK real estate" holdings.

Fund houses on the forum included BNP Paribas, Cushman & Wakefield and Standard Life Aberdeen.

A significant number of funds, totalling some £12bn across the IA UK Direct Property sector remain suspended following the application of MUCs in the wake of the covid-19 pandemic. The result has been that, since March this year, millions of pounds of investor capital has been frozen in funds.

Ryan Hughes, head of active portfolios at AJ Bell, said: "I would expect that as soon as these funds reopen, many investors will be looking to sell their investments before any potential change in rules comes into force."

Oliver Creasey, equity research analyst at Quilter Cheviot, said this morning's decision means UK property funds now have the ability to reopen and be traded once again with all but immediate effect.

"UK property valuers invoked the MUC, a power given to them recently by the FCA, around values in March when the pandemic was taking hold. Since then some subsectors, notably office and industrial, have seen the clause removed, with the largest one left, retail, having been removed today."

"The MUC is important because it brought about the suspension of direct UK property funds back in March, and the large, diversified funds all had enough retail/other exposure to remain suspended until the Clause was wholly removed. However, while the funds all suspended immediately after the MUC was imposed in March, it is very unlikely that they will reopen as quickly. 

Creasey added, "The problem funds have is working out how big this backlog is, and managers have been trying to ascertain their clients' intentions for some time."

However, others in the sector expected it would take some time before funds are fully reopened. Adrian Lowcock, head of personal investing at Willis Owen, an investment platform in the UK said: "The lifting of the MUC is the first step for property funds to reopen."

"However, we don't expect to see a rush to reopen from many providers. With Brexit back on the agenda and the deadline to approve a deal fast approaching, not to mention the risk of rising cases of covid-19, the timing of this move by RICS could create problems for property funds."

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Christopher Copper-Ind

Christopher Copper-Ind is editor-in-chief of International Investment. Before this, he was editorial director of The Business Year, from 2014 to 2017.