Neil Collins Notebook: No release from the property fund trap

There is £12.5bn of your money trapped in property funds, and the boffins from the Financial Conduct Authority seem set on keeping the door shut. Their latest wheeze is to insist that an investor who wants to sell must wait six months before she can get her money out. In other words, a non-solution to an insoluble problem.

These funds have always been a bad idea. The principal beneficiaries have been financial intermediaries who could lure in the punters with talk of investment “exposure” to a different asset class, one where the lumpy sums involved mean only the big boys can play. There was also a useful commission to be earned.

Property funds, promoted with the promise of instant liquidity, are particularly unsuitable for an asset class as illiquid as commercial property. Values, often from surveyors who helped buy the buildings in the first place, always have an element of guesswork, along with pressure to take the optimistic view. The only sure way to establish the true value is to sell.

In today’s febrile markets, actual transactions are more like fire sales, with the current value of shopping centres, for example, too hideous to contemplate. An indication of how little these assets are worth is the bonfire that is the terrible twins of the property share market, Intu and Hammerson. One is bust while the other is embarking on another painful rescue, inviting shareholders to throw good money after bad.

They should decline the chance. An indication of true values today is the price of Land Securities, the sector’s biggest listed company. At the end of March it guessed that its portfolio (it developed the ghastly walkie-talkie car-frying block in the City) was worth £11.82 a share, down 12% from the previous March. As the lockdown devastated the UK economy, that looks wildly optimistic today.

Its share price generally stands at a discount to net asset value, but even after staging a recovery last month, is 585p, a fire sale price, if you like. The shares look a far better bet than “supporting” the latest Hammerson refinancing out of some misplaced sense of loyalty.

Indeed, commercial property is so unfashionable today that contrary investors should be looking hard. Landsec will survive. The company plans to resume dividend payments in November. The office block of the future may look different, but it is not going the way of the shopping mall, and tenants will resume paying rents.

Some are already doing so. Last week little Regional REIT posted an upbeat statement and reported that 98.9%of the rent due had been collected in the last quarter. The assets, as the name suggests, are mostly away from London and the shares have risen sharply this month, but at 81p they still yield 10%. It’s the sort of share the holders of those property bonds should be buying, when they can finally get the remains of their £12.5bn out of lock-up.

Far from electrifying

July was a brilliant month for Tesla Motors in New Zealand. Sales jumped by 167%. It was even better in Ireland, which posted a 400% rise. Sadly, these are not key markets for the runaway electric car company, which sold a grand total 0f 71 vehicles in the two countries combined.

Elsewhere, the picture is not so bright. Sales slumped in the UK and Germany, and collapsed by 94% in the “early adopter” countries of the Netherlands and Norway, from 1,112 to 67. Now one month is not much of an indicator, and Elon Musk showed his ability to pull rabbits from his corporate hat this week with his proposed stock split. This changes nothing, but was enough to send the shares up by another 7%.

True Tesla believers care little about such things, but reality bites, eventually. Despite subsidies for buyers and the freedom from most motoring taxes, buyers of electric cars are mainly the show-offs, early adopters and those wanting a second car to run around town and flaunt their greenery. Range anxiety and the cost (even after subsidies) continue to discourage the rest of us.

Now to that list has been added plunging second-hand values. This market is young and patchy, but Goldman Sachs estimates that the average resale value is around 40% of the new price, compared to between 50 and 70% for conventional cars. Improving battery technology is helpful for new car sales, but positively harmful for the value of older models.

Governments everywhere are trying to strong-arm buyers into electric cars, and in many countries have already convinced motorists that diesel is evil. But even with continuing subsidies, swingeing taxes on petrol and the promise of a massive (taxpayer-funded) investment in charging points, the verdict from the buyers is clear: we really don’t like them.

Not going Dutch

After last year’s great escape for Unilever, when its Dutch executives conspired with their government to end its cumbersome dual-headed structure and relocate to, er, Rotterdam, it was unlikely that those politicians would be happy to see the company go to London instead.

So it has proved. The left-wing (very) minority group in the parliament wants to impose an exit tax should Unilever’s current plan go ahead. This could amount to €11bn, a ludicrous sum which would far outweigh any savings from unification. The move is probably illegal under European Union law, especially as it is proposed to start from last month, making it retrospective legislation.

The proposal has almost no chance, even in an attenuated form, but it does serve to highlight the motive of those at the top of Unilever at the time, and why they had to go. They learned the hard way that it’s not their company.