Savers who invested money in the Invesco Property Income investment trust have been told it is very likely that the will lose everything.
According to a London stock exchange announcement shareholders in the trust have been told that the company cannot meet its loan repayments and therefore trading in the shares has been suspended.
The investment trust with assets recently valued at £115 million, invests solely in commercial property, and has now said shareholders would probably not get any of their money back after the fund is wound up.
This situation it would seem is a legacy of the credit crunch where the overhang of debt in the investment trust company, taken on at the height of the property boom in 2007, and owed mainly to the Royal Bank of Scotland, is just too high to repay without winding up the company.
When funds like this invest in properties directly, instead of owning shares in property companies, they are forced to restrict investor withdrawals during difficult periods because they cannot dispose of their properties quickly. When, as in the financial crisis, the property values have diminished considerably, a sale would in any case not recover anywhere near the amount borrowed.
Stock market analysts have commented that most commercial property funds now have sufficient safety margins of cash to meet any foreseen withdrawals. They have described this as a “one-off” case, and with the commercial property market now beginning to revive with the general improvement in the economy, now is more likely a time of opportunity rather than fear.
As one commentator remarked, the practice of “gearing” in property investment gives the investor a tremendous advantage when things go well, but get the gearing out of proportion to risk and the timing out of kilter with the economy and disaster can easily follow.
The usual disclaimer always applies to investments: The value of your investment can go down in value as well as up, so you could get back less than you invest.