Property funds close doors to new money

Several commercial property funds have closed to new investors while others are holding near-record amounts of cash because of huge inflows of money and a shortage of suitable investment properties.

High returns in 2004 have made commercial property the hottest investment sector but advisers say parts of the market are starting to look overheated.

Standard Life has suspended access to its £2.7bn Pooled Pension Property Fund and its £1.4bn Life Property Fund. The company said the funds had proved so popular that it was struggling to find enough quality properties in which to invest.

Threadneedle has a 6-8 month waiting list for one of its property funds and will not accept new money until suitable investment opportunities arise.

Financial advisers said Standard Life's announcement might have a knock-on effect on the rest of the industry.

Nicholas Fletcher, managing director of independent financial advisers Saunderson House, said: "It would not be surprising if other investment houses follow suit as some are already controlling inflows."

Scottish Widows Property fund is restricting investment in its life and pension property funds to 25 per cent of an individual's total policy value.

Standard Life said it had decided to shut its funds to new money to prevent a significant dilution of the investment performance of the fund by holding large amounts in cash.

Over the past three years its property funds have taken in £3bn from investors. The life fund holds 12.3 per cent in cash and the pension fund 4.5 per cent.

Many other commercial property funds also have near-record weightings in cash. Morley Property investment fund has 23 per cent in cash, as does the Axa Property fund.

Commercial property offered returns of 18 per cent last year, compared with 12.8 per cent for equities and 6.6 per cent for gilts, according to the Investment Property Databank.

Its data show total investment in commercial property at £810m in August, double levels earlier in the year.