Indication of major downturn for UK property funds
Recent statistics from the Investment Association (IA) indicate that a major downturn for UK property funds could be imminent, as the net retail outflow of £119m ($171m) for February 2016 represented the largest since November 2008. Property funds were reportedly among the best selling assets on the market last year, with sales reaching nearly £4bn. This year, however, they are among the worst selling assets alongside fixed income and equities. Other reports suggest that the London luxury property market is in crisis and likely to stall in 2016, as home prices for some of the wealthiest areas fell 6.7% in just over one year. Analysts cite stamp duty increases, the potential Brexit, and general economic uncertainty as factors underlying the decline in investment in UK property funds for 2016.

UK investors are running scared of property funds right now. Jeremy Reddington/Shutterstock

Figures from the Investment Association (IA) this week gave the biggest indication yet that a property crash could happen very soon.

Property funds saw a net retail outflow of £119 million ($171 million) in February.

According to the IA's report, that's the largest outflow since November 2008.

The figure is also much bigger than January, when outflows were only £28 million. Both January and February are far worse than December, when £151 million poured into funds.

This represents a major downturn for property funds as an asset class.

Property funds buy commercial and residential properties all over the UK and across the world. They are mainly used by long-term investors who want to diversify their portfolio, and can give a good idea of investor confidence in the property market.

Just over a year ago property funds were among the best-selling assets on the markets, with sales of almost £4 billion. But now they're amongst the five-worst selling — along with fixed income and equities.

This chart shows how much property fund investment has fallen in 2016 compared to previous years:

Danny Cox, chartered financial planner at Hargreaves Lansdown, brushed off the figures, telling the Financial Times that structurally open-ended property funds — funds that can issue an unlimited number of shares — don't work.

“Managers are forced to buy and sell properties according to cash flow, not on market conditions," he said. “The rush of money into property funds leading up to 2007 saw managers overpaying for properties they didn’t want, simply because they had to invest the wall of money hitting the sector.”

Despite this, the signs are still worrying for the property market. Business Insider reported on Thursday that the luxury property market was likely to stall in 2016 as house prices for London's wealthiest areas had dropped 6.7% in just over a year.

Analysts cited rising stamp duty, fears over the impact of Britain leaving the EU and general economic uncertainty as factors. Whatever the reasons, they certainly seem to have had an effect on property fund investment too.