The amount of money flowing out of UK property funds topped £1bn for the first time ever in the fourth quarter of 2007.

New figures from the Association of Real Estate Funds showed the extent to which investor sentiment turned against property at the end of last year.

But Rachel McIsaac, chief executive of AREF, believes the sector has reached a bottom. ‘The anecdotal evidence shows that people think the market has turned. Swap rates have come down and further drops in interest rates are to come.’

Pat on the back

McIsaac also said the open-ended model for property had held up. ‘None of the authorised unit trusts have had to defer redemptions despite nearly constant headlines about private investors being locked in. I think that the FSA will be patting them on the back.’

A record £1.65bn left open-ended funds in the fourth quarter, compared with £940m in the third quarter. This represents just less than 4% of the total net asset value of the 64 AREF member funds, which have a combined value of £37bn.

The amount of new money coming into funds almost halved, down from £800m in the third quarter to £425m. Of this, only £6m was raised from new investors, down from a peak of £352m in September 2006.

Returns down

For the fourth quarter, pooled property funds produced a total return of -9.1%, less than the -7.6% returned by direct property in the fourth quarter, according to Investment Property Databank.

However, unlike IPD the AREF data includes investment management fees. However, both direct property and funds returned less than bonds and equities in the quarter, at 4.7% and -0.3% respectively.