Financial News

Aviva (LSE: AV.L - news) has removed the restrictions on withdrawals from its unit-linked property fund, signalling a more optimistic outlook for the UK commercial property market.

The British insurer introduced the restrictions in January, temporarily deferring any requests for transfers, surrenders, switches and partial withdrawals for up to six months.

"With improving conditions in the commercial property market, Aviva is now confident that current cash levels are sustainable," said David Barrall, marketing director at Aviva. "This enables us to lift the current restrictions for all investors in the fund from today."

The move indicates increased confidence in the UK commercial and retail property market, which has recently rebounded after months of sluggish growth.

The restrictions were intended to provide the fund with a buffer against falling property prices and a tightening credit market. They aimed at giving the fund a longer period of time to sell the properties at more reasonable prices and to raise larger cash reserves.

"Aviva introduced deferred withdrawals from the fund to safeguard the interests of all investors in what was an extremely difficult time for the UK commercial property market," Mr Barrall said.

After the Investment Property Databank (IPD) index - the leading benchmark for the sector - rose in August and September, investors have begun moving more money into the property market, further pushing up prices.

James Pearson, head of fund propositions for UK Aviva Life, said many investment managers believe that the property market is heating up again.

"The level of transactions has been up. There is more activity in the markets, along with more liquidity. The demand isn't just from within the UK but also from overseas investors who seek to take advantage of the weakness in the sterling."

But Mr Pearson conceded that while the commercial property market is showing signs of life, "the overall returns from the UK property market will really depend on the pace of economic recovery and the availability of capital."

The Aviva Life property investment fund, which was subject to the deferral restrictions, invests heavily in the retail and office market. In the past year, returns on the fund have fallen by 12.6 per cent.

Higher property yields have also attracted investors away from other asset classes such as cash and bonds. Mr Pearson said the current yield on property funds is between 5 and 7 per cent.

Although Aviva doesn't foresee further restrictions on its commercial property funds in the short to medium-term, the insurer hasn't completely ruled out the possibility.