Monday, 8 August 2016

Safe as (securitised) houses...

FT Alphaville's Kadhim Shubber, has been questioning the sanity of investors in property crowdfunding schemes:

"The flat’s market value in January 2015 was £525,000; Property Partner grabbed it at a discount for £435,000; and in July another independent valuation put the price at £611,000. But in the past three months investors on the website have given the property an implied valuation as low at £520,000 and as high as £4m."

It's less common for financial hacks to question the market valuations of property companies in general.  Take institutional landlord Grainger plc for instance.  At close of play today the company was valued at £906 billion, whereas on 31/09/2015 (when they were valued at more like a cool billion) their accounts showed net assets of £565 billion.

There's perhaps a big difference between buying a company at more than the value of its assets in the hope management grow the business and buying a share in one flat.  But nevertheless, whereas the big commercial property companies trade at thereabouts or even discounts to book value, those plc's holding residential property (landlords and householders) are changing frequently hands at double their intrinsic value.  The market likes UK residential property so much, it's prepared to pay double the going rate for the convenience of owning it in the form of ready-leveraged, hassle-free shares.

And the nations financial regulators appear to be quite happy for residential property to effectively be securitised and flogged as illiquid penny shares on the basis "Bricks and mortar make a solid investment" and "No one ever said ‘safe as the stock market" and even "Earn a current estimated return of 10%* per year, after fees."  

Alongside this sales spiel, Property Partners boast that over 8,000 punters have invested over £35 million in 234 properties so far.  Small fry in housing or stock market terms, but one to watch and something that just might take off during the next phase of the land price cycle.  How long it will be before the leveraged products are released?  And will they be allowed to advertise in the same manner?


Mark Wadsworth said...

Looks like a great idea of double bubbling.

House prices go up, people expect them to continue going up so overbid etc, the premium to assets value in landlord companies goes up (i.e. they go up even faster than house prices), so people expect this to continue and overbid etc.

Failsafe and foolproof, innit?

Steven_L said...

So someone has already overbid about 8x in the early stages of this. I wonder what levels this kind of thing could get bid to?

They look intent on pushing interest rates down further still, and now they're corporate bond prices with central bank money.

When punters can't get any risk free return, and BBB corporate bonds only pay 1% for 25 years, maybe they'll look to these securitised houses for income, retirement income even, and the mechanism to bid houses u to sub 2% yields will be in place?

Lola said...

Just done quite a bit of work on 'crowdlending/crowdfunding/whatever'. Generally a Good Idea. But clearly a 'Bad Idea' in the property gearing up space.