By Marcus Williamson on Friday 29 July 2016
Post Brexit there have been a handful of economic ripples which the media has continued to report on, with the property market being one area of focus.
Most noticeably there was the recent drama surrounding the freezing of some UK open-ended commercial property funds to prevent market deterioration - which only made the situation more manic in the eyes of the media!
Ironically the selloff is caused by investors frantically redeeming their holdings in the property funds. This forces the funds to liquidate property assets at sub market prices - to speed liquidation, naturally suppressing the market. These investors were creating the selloff they were trying to avoid, the panic was self-fulfilling!
Source: Thomson Reuters
At the same time as all this bad news is being released, our sterling denominated property market is attracting a lot of attention from overseas buyers - as it is now at a discount. This is effectively a form of foreign direct investment (FDI), which was always going to happen when the pound fell, so overall there has been no spiral into the abyss.
Crowdfunded property provides investors the opportunity to have fractional exposure to many properties. This is a fantastic opportunity which has only come about in recent years, and can be accessed through platforms such as PropertyMoose or PropertyPartner, both of which I currently invest with.
I will focus specifically on PropertyPartner here as it has an active and functioning secondary market, allowing resale of property ‘shares’. Over the Brexit vote investors were aggressively dumping shares onto the secondary market leading to deep discounts.
I want to first acknowledge how PropertyPartner (just like every other platform I invested with) instantly released a blog post to reassure investors after the vote decision was announced.
They specifically mention: “At PropertyPartner, we have avoided the Prime Central London market, despite demand from our investor base.”
They themselves implicitly highlight the risks associated with the prime London property market with the Brexit out vote.
A quick side note: I found it quite interesting how a later blog post was put up which covers the difference between PropertyPartner and a property fund (the ones being slayed in the news)!
Discounts in the property market
After a couple of emails like the ones below, it was clear to me that there was some disruptions in the secondary market:
They even followed up the dialogue with some snapshots of the discounts, looking to highlight a sell off as an opportunity for other investors with ‘Yield at this discount’:
However, I myself found some more vigorous discounts on visiting the site; some were upwards of 16 per cent. Even some weeks after the vote there are still some large discounts about, like the one below:
I’ll be clear that I personally bought into the market heavily after the vote decision was announced, but I was careful about what I bought.
I don't believe all discounts that are equal in value are equal in opportunity; London is a notorious property microclimate, which is reflected in the property market’s affordability by means of average wages.
Steering clear of opportunities which are priced at a premium due to previous market momentum (aka prime London) is a strong suggestion, as Brexit is unlikely to lead to a continued market rally in my opinion.
It's a simple as that! I sorted the opportunities on PropertyPartner by dividend yield, and spread my investment evenly across the top non-London properties.
There are still discounts to be had across the various crowdfunding platforms in the UK as the market reels in shock and investors sell due to negative press. As it takes time for monthly property market data to filter through from the previous month, there are likely to be further bumps in the road.
These short term discounts should be seen as potential opportunities for a steadfast investor.
Marcus Williamson is a private investor in P2P and marketplace lending as well as crowdfunded property and runs a small private fund of alternative assets.