Property investment platforms including those linked to peer-to-peer (P2P) lending are going through an astonishing growth spurt at the moment and have become a significant provider of development finance for SME builders and a source of leads for agents.
The key to their growth has been to make investment in property development relatively easy, and enable the industry to appeal to a much wider range of investors who before may have been happy to buy a two-bedroom flat and rent it out, but would have shied away from more sophisticated, numbers-driven off-plan or new-build property.
Last year approximately £1.2 billion was invested in residential property via lending platforms such as Landbay, Wellesley & Co, Assetz and Experience, 6% more than the year before.
“Smaller house builders are our bread and butter but we’re seeing pretty big regional developers coming to us for finance now,” says Stuart Law, Assetz Capital’s founder and CEO.
Law also told DealMakerz that Assets is planning a move ‘soon’ into development partnerships which would see it become a direct player in the house building sector, although not a competitor with developers.
“One avenue would see us both funding the construction and buying the development, and it’s something that’s definitely going to happen within the Assetz group,” says Law.
This sort of galloping innovation means investment platforms can be a puzzling and varied sector to understand.
Although they are lumped together as ‘investment platforms’ they all differ. This includes the most up-and-coming – crowdfunding – but also buy-to-let mortgage platforms such as Landbay, plus the more traditional companies which enable investors an arms-length involvement in developments.
The latest of these to join the fray is Propetly, founded by Swedish businessman Sergey Kazachenko who believes there is a gap in the market for a tech-driven investment platform that, initially, is to offer estate agents in the UK a way to find investors for developer clients. It plans to move more directly into development finance at a later stage.
“I’ve been involved in SME property development and finance in Scandinavia for ten years now and I was casting around to see where technology could improve the property investment experience and everything pointed to London and the UK,” says Sergey.
“There is significant growth in this sector in the UK but it’s not the core reason why I set up here; we wanted to contribute to the process of making efficiency improvements to the process.
“P2P lending is an established sector now and although there are improvements to it to be made, we wanted to concentrate on making the traditional investment platform experience faster, simpler and better informed.”
Kazachenko says he wants to eventually be able to enabled investors to buy properties within 24 hours, a major challenge given the UK’s sometimes labyrinthine conveyancing process.
But Propetly is offering a solution to a high-profile problem that P2P is also tackling; traditional buy-to-let is becoming increasingly unattractive to many investors.
“There have been some reversals in fortunes within the buy-to-let market and that’s persuading people to back off a little,” says Law. “And peer-to-peer lending as a way to create income for investors is very much in growth mode.
“I think the future will be P2P platforms offering individuals a way to access buy-to-let type investment without having to get so involved, or expose themselves to Capital Gains Tax.
“And the capital and income returns available from P2P are comparable to traditional buy-to-let investing.”
Also, tax relief reductions, Stamp Duty increases and an increasingly regulatory environment are persuading more investors to consider P2P and other investment platforms, which is behind their growth in recent years.
Whichever way you look at it, the investment platform-based property sector is an important part of the ‘alternative finance scene’ and, a report last year by Cambridge University estimated, in total it has raised nearly £5 billion so far for developers since the late noughties.
The withdrawal of high street banks from what they consider to be risky SME property development financing, particularly following the 2008 financial crash, has also played a huge role.
“The banks consider this kind of property development finance too expensive and complicated and many of them don’t do it any longer,” says Law.
“We deal in stretched first-charge senior debt; if banks do lend they top out at about 60% loan to development value whereas we will go as far as 65%. I know of P2P lenders who do get involved in early-stage mezzanine types of finance but it’s not worth it for the one or two percent returns.”
P2P platforms are also largely separate from the traditional banking sector and the Cambridge University report found that 71% of them had no ties to banks.
But institutional requirements are sneaking in, nevertheless. Assetz recently launched a Luxembourg-based private fund to attract more institutional funding and boost its lending book.
A second string to this market has also recently been developing. Many of these P2P lending platforms like Assetz have been fundraising on crowdfunding services such as Seedrs and Crowdcube proving that investors are not only want to put their money into property via these platforms, but also want to invest in them directly.
Recent largely over-subscribed crowd-based raises like this have included Arbirate (£457,000), CapitalRise (£2.4 million), CrowdProperty (£1.1 million) and Assetz, which is currently raising £1 million via Seedrs; its third fund raise via the site.
Tech is also playing an increasing role in the sector. During the early noughties most offered simple software that enabled people to track their investments online, but increasingly the whole process has become automated.
“People don’t want to invest manually and plough through credit reports because it’s so time consuming,” says Law.
Propetly is also leading with tech – it’s main appeal for agents and developers is that it will offer big data-rich guides to each property investment opportunity.
This, it claims will enable investors to understand more clearly its potential for income or capital appreciation, including construction costs.
“Everyone in the UK and beyond increasingly wants better returns from property and lower costs of transaction,” says Kazachenko.
And platforms like his plus the P2P giants like Assetz and Experience, and the emerging crowdfunding sites, are hoping to exploit this desire by making property development investment a mainstream activity.