By Ryan Weeks on 6th July 2016
Are Property Partner investors revealing signs of post-Brexit jitters?
When we interviewed Property Partner boss Daniel Gandesha in June, he described liquidity as a “false friend”. He also said that if investors aren’t positive on the story for UK residential property, then that “should absolutely” factor into their investment decisions.
Property Partner stands out as the UK’s largest equity crowdfunder for real estate. The platform boasts an active secondary market – one which might give us some indication of how the residential investment market is responding to current pressures. Of the 54 properties that are currently listed on the platform, 36 may currently be invested in at a discount to their latest valuation, via the platform’s secondary market. The largest of these discounts is for a 7 unit block in Eastbourne. Shares are currently on offer for 55p, which represents a 17.32% discount to the latest share valuation of 66.52p – which was based off an independent surveyor’s assessment of the property on 5 July. The New Listing share price for that property (which was based off an independent valuation in February of this year) was 51.84p. This means that that the property is still at a 6.10% premium to the original listing price of the shares. Of the 36 properties in question, there are currently only 3 that are trading at a (small) discount to the original listing price. These numbers are all correct as at the time of writing this article.
Property Partner has maintained a positive outlook in the aftermath of the UK’s Leave vote. Mark Weedon, Head of Research at Property Partner, said that the “stickiness” of residential property may prevent house prices from falling in the short term, with the exception of London’s most expensive areas. Weedon points out that people are generally unwilling to sell residential property in uncertain times – highlighting this as a unique feature of the asset class. To clarify, Property Partner is for the time being exclusively residential. Weedon went on to say: “During periods of volatility like this, investors tend to prefer assets which can provide a reliable income, combined with lower risk, to preserve their wealth. Now more than ever, investments that bring in a reliable income will be highly prized. The net yields on our platform, for example, are up to ten times the Bank of England Base Rate. And of course, Brexit could lead to rates being cut.”
But movements in the markets could precipitate some nervousness among Property Partner investors. Grainger plc, a FTSE 250 residential investment vehicle, has seen its share price fall from around 243p to below 197p over the past month. As a larger, closed end vehicle, Grainger is widely seen as a decent proxy for residential property.
“Extraordinary market circumstances” have now caused the open-ended Aviva, Standard Life and M&G commercial property funds to suspend redemptions, in anticipation of a mad dash to sell. One senior analyst said that the problem faced by such funds is that “it takes time to sell commercial property to meet withdrawals”, and that the cash buffers held by managers have already been “eroded by investors heading for the door”. The last time Standard Life suspended trading in this way was during the 2008 Global Financial Crisis.
Property Partner CEO Daniel Gandesha tells AltFi that the platform has in fact seen more buyers than sellers in the aftermath of Brexit. The platform has had £27.05m invested on the primary market to date, and £7.35m invested via the secondary market. There are currently £20k in shares available at a discount to their original listing price on the platform’s secondary market. This comes as a surprise to Gandesha, who had expected “some quite deep discounts” in the wake of Brexit. He doesn’t see the fact that a number of the properties on the platform are trading at a discount to their most recent valuation as a concern. Gandesha says that this phenomenon pre-dates the Leave vote, and that it is primarily a function of investors looking to game the platform by buying primary market shares and flipping them at a premium on the secondary market. Six weeks ago, Property Partner took steps to prevent this kind of behaviour from happening.
Gandesha admitted that, to date, Property Partner has been more focused on the primary market opportunity. Going forwards, however, he said that the company has an opportunity to place more emphasis on the secondary market. The company is currently getting ready to launch a bidding functionality for secondary market investors. “We’re now building a bidding engine.” Said Gandesha. “If you’re bullish on property, you’ve got a reason to come to our site and buy. But what if you’re bearish? With bids, we’re going to allow investors to come in and place a bid on shares. If someone’s willing to sell at that price, they sell. If nobody is willing to sell, then the bid won’t be matched”. The beta version of the bidding system will be live within the fortnight.
Gandesha stressed that Property Partner was not built on the belief that property was a "one-way bet". He said that the platform wouldn’t have received over £20m in venture funding from the likes of Index Ventures and Octopus Ventures without giving great consideration to reacting to swings in the property cycle.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.