Retail investors have withdrawn more than £4bn from the leading UK direct property funds in the past year, with concerns about the impact of Brexit on property values making investors nervous, according to new analysis by AJ Bell.

The investment platform has suggested the level of outflows from some property funds will be alarming for investors – with a 20% average of outflows from the UK's leading property funds seeing some investors lose half of their assets over the past twelve months.

The consistent outflows are also having a knock on-effect on cash levels – AJ Bell found cash reserves have hit 30% for some funds – as managers use cash reserves to hand money back to investors.

AJ Bell personal finance analyst, Laura Suter, commented: “It’s a tricky balancing act for property funds at the moment to ensure their cash levels are right. As the sector has seen consistent withdrawals, these funds need to ensure they have sufficient cash to pay investors wanting to redeem their money.

“However, as cash is earning next to zero returns, if the fund has too much in cash it will seriously hit the fund’s performance – with investors continuing to pay the normal fund charge on the entire amount invested.

“Considering the level of redemptions in the property sector, some investors might be nervous about their fund having less than 10% in cash – if the fund saw a large level of withdrawals they could quickly run out of cash.”

AJ Bell has also found the average return on investments over the last year was -2% but did note that cash levels can change each month, indicating investors should look over the longer term too.

“Because the assets held in these funds are sizeable, the sale of just one building can result in a big boost to cash levels,” Suter continued. “Likewise, buying a single property can eat into a large chunk of cash reserves.

“The City regulator has finally proposed new rules on property funds, following the suspension of many in the sector during the turmoil following the Brexit referendum more than three years ago.

“It backed down on previously proposed plans to force property funds to cut their large cash allocations, but it has decided that funds must suspend if they are uncertain about the value of 20% or more of their assets, meaning we’re likely to see more funds suspend more frequently.”

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