The Investment Association this week issued some very interesting figures which show that during February there was a £119 million net retail outflow from UK property funds. This follows a £28 million outflow in January and a £151 million inflow in December. Those who have been cautious of UK property for some time now have taken these funds and used them as a battering ram to suggest the UK property market run is coming to an end.
Should we be concerned about net outflows from retail property funds? Is this really the start of a correction in the UK property market?
Taking figures in isolation
Two difficult months do not make a trend and while it is surprising to see such an outflow, effectively a net redemption of property funds from investors, when looking at past figures this is not the end of the world. When you bear in mind the impressive performance of the UK property market over the last decade or so perhaps investors are now hedging their bets and banking some profit?
Is it a coincidence that we are approaching the end of the UK tax year? Is it a coincidence that the UK is currently reviewing its membership of the European Union? These are all factors which investors would be foolish to ignore because they do impact upon investment markets and short-term trends. At the moment there are as many people in favour of the UK remaining in the European Union as there are against membership (in broad terms) but this does look like a battle which will go down to the wire.
We often seem to ignore the reorganisation of assets ahead at the end of the UK tax year. As we enter a difficult few months for the UK property market is there really anything wrong with investors banking a profit and using their capital gains tax allowance this year?
Scare stories don’t work
The general scare stories about the UK property market have failed to have any material impact upon investor sentiment over the last decade. We have seen property values questioned, concerns about the direction of base rates and indeed the ever-growing cost of operating in the buy to let market has also been headline news. The fact is that investors will make up their own minds and while scare stories can have a short-term impact upon investment strategies, if they are not backed up by cold hard facts and figures then markets will very quickly bounce back.
That said, it would be foolish to dismiss concerns about the UK economy, whether or not property prices have become detached from fair values and whether the upbeat performance of the London property market is coming to an end. There are some very serious fundamental questions being asked of the UK at the moment. Until we have a definitive answer on issues such as membership of the European Union it would be no surprise to see further net redemptions of UK property funds in the short to medium term.