Property funds close door on withdrawals

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Deutsche Bank became the latest fund manager to take drastic action when it told investors in its £1.3 billion RREEF fund in the UK they would have to wait for up to a year to sell. It followed similar moves by UBS and Morley, and sparked fresh fears in the industry that more fund managers will take similar action to stave off a liquidity crisis.

Experts are becomingly increasingly concerned that the downturn in the commercial market in the UK is more like the crash of 1989 than the less severe one of 1998.

"We believe the sharp fall in confidence in the UK property market to levels only last seen in 1990 supports our view that the current downturn is more like 1989 than 1998," said Martin Allen, an analyst at Morgan Stanley.

Investors in the £2.3 billion Triton property unit trust run by UBS and a £1 billion fund run by Morley have already been told they may have to wait for up to a year before they can leave. Norwich Union is preparing to suspend redemptions in its flagship £3.6 billion Norwich Property Trust if investors continue to flee the sector.

The credit crunch has made it increasingly difficult for buyers to borrow money to fund property deals, and this has led to a sharp slump in activity.

The liquidity crisis facing property funds comes at the end of a grim year for listed property stocks, during which share prices have crashed by about a third.

The value of transactions in the UK looks set to tumble to about £5 billion in the fourth quarter from £15 billion in the third and £18.6 billion in the fourth quarter of 2006, according to property consultants Jones Lang LaSalle.

Rival agency Cushman & Wakefield has also said it expects deals in the final quarter to be down by about a third from the same time last year.