Fears are mounting that small investors may find it harder to get their money out of property funds as the credit crisis continues to bite.

The cash buffer that provides liquidity for transactions in Norwich Union's retail property fund has fallen to 7%, about a third of normal levels.

And a number of property funds aimed at professional investors have already either cut the value of their units or forced investors to delay redemptions in the wake of a fall in the value of commercial property, and a sharp drop in the number of deals, over the last two months.

Cash levels

Figures to be released this week are expected to show that cash levels in funds such as Scottish Widows Investment Partnership and Norwich Property Trust have halved as tens of millions of pounds have been withdrawn in just one month.

SWIP’s cash holding has fallen from 10% to just 5% of its £1.2bn commercial property fund over the past month.

Emergency meetings

Concern about a potential crisis has forced emergency meetings both at the Financial Services Authority and among the fund managers about how they can stem the run on the funds and whether they will have to restrict redemptions.

Research from Jones Lang LaSalle, the commercial property agent, suggests that transaction volumes in the market have fallen from around £18.6bn per quarter to £5bn over the past year.

Uncertainty over pricing in the market and expectations that valuers will knock a further 8-10% from valuations in the current quarter have left commercial property buyers reluctant to enter the market.