Property crowdfunding: an alternative to equity?
For a crowdfunding investment with a potentially lower risk, property crowdfunding may be worth investigating. As interest in equity crowdfunding continues to rise, it was only a matter of time before the craze spread into the property market; arguably, the most popular area to invest.
There are several platforms online that offer property crowdfunding opportunities, including PropertyMoose, The House Crowd and Property Partner. Essentially, this service allows you to invest in a buy-to-let property without having to take on the additional responsibilities that come with being a landlord. It is popular among investors who want a slice of the property market but lack the capital to create their own portfolio; the Council of Mortgage Lenders show that the value of buy-to-let lending currently stands at £27.4bn.
Andrew Gardiner, chief executive of Property Moose, says “Crowdfunding opens up the market to everyone, so they can invest in property for a much-reduced commitment … Plus, it allows people to diversify across asset types and geographic areas, helping to spread risk and, hopefully, increase returns.”
So what are the benefits?
Compared to equity crowdfunding, where only 10% of the businesses are likely to succeed, putting money into the property market is a comparatively low risk investment. With both house prices and rent continuing to increase, especially in London,
Crowdfunding a property gives you access to a market that would otherwise be out of reach.
With crowdfunding, the properties have no mortgage; this means no exposure to interest rate fluctuation. You also have a legal charge on the property, increasing the safety of the investment should someone along the line go bankrupt.
Equally, for tenants, living in a crowdfunded property could mean more security – if one person wants to sell, there is no change of ownership none of the hassle for the tenant associated with a normal sale. Similarly, as ownership is unlikely to change and the house will always be for renting, there is more certainty as to the rental period.
And the problems…
There is no way to get your money back fast. Investments are for a fixed term, usually 5 years, and if the house needs to be sold, the process usually takes a minimum of three month. If you wish to just sell your share, what you receive for it depends largely on whether there is a secondary market interested in buying it.
Secondly, the fees on this sort of investment are high. The House Crowd will charge 5percent up front nd a profit share for thie manafagement company from the rent, and gains of “around 25 percent”. Property Moose charges you 5 percent up front as a finders’ fee, and then 15 percent of the yeield as well as 15 percent of any final capital gain. These charges all add up – there is the danger of an investment in this way not being value for money.
Whilst one of the advantages of property crowdfunding is easier access to the market, Royal Institution of Chartered Surveyors has expressed concern that such easy access to property investment could exacerbate volatility in the market.
Oil firms ahead of inventories
Oil prices are firmer before Crude Oil inventories that are expected to post the seventh consecutive weekly decline in stockpiles.
The sharp sell off earlier this year caused some producers to reduce output and the trickle down effects are now being felt in both inventories and the price of oil.
The weaker dollar has also supported prices. Prior consensus of a rate hike has been squashed causing the then strong dollar to weaken.
Oil has rallied over 40% from the lows observed in early 2015 but many analysts are still cautious and feel there could be further downside.
“We’re not in the clear as far as the supply-demand balance. In some ways, we think this whole situation is getting worse,” said Vikas Dwivedi, head of oil strategy at Macquarie.
Credit Suisse downgrades Tesco and Sainsbury
Over the first 3 months of the year the UK’s leading supermarkets staged a strong recovering rally from their distressed levels outperforming the FTSE 100 significantly.
Credit Suisse has today initiated coverage of UK food retailers with a negative stance rating both Tesco and Sainsbury’s at “Underperform” with aggressive price targets of 169p and 219p respectively – indicating the potential for a 20% collapse in Tesco’s share price and 15% pull back in Sainsbury’s taking them back to levels they were trading at 6 months ago.
Whilst Credit Suisse highlighted the continuing decline in like-for-like sales, the rate of decline in margins is even quicker as the price war continues saying “We see no obvious path back to recent margin levels”. In the note CS confirmed Tesco and Sainsburys had born the brunt of the price war.
Unbound: the future of publishing?
Unbound is a novel new crowdfunding site, allowing readers to fund books that they want to read. Marketing themselves as a ‘crowdfunding publisher’, the website aims to be a middle path between the traditional publishing route and self publishing, which comes with its own difficulties. In a world where the long term future of the published book is increasingly endangered by Amazon and e-Books, could this be the future of publishing?
Rather than following the equity crowdfunding model, if a person likes the look of a pitch they are invited to pledge money in return for various rewards, including special edition hardbacks, a name in the front of the book and lunch with the author. If the target is reached, around £10,000, production begins and sales begin by the traditional route; profits from the book are split 50:50 between Unbound and the author.
Unbound is the brainchild of successful author, Dan Kieran. The idea came after the financial crisis of 2008, when advances offered to him by publishers dropped to so little that his writing career became unsustainable.
“There weren’t millions but there were thousands who would buy a book I wrote if they knew it existed. So I saw that someone had to build a platform for an author to connect with their audience directly and have a relationship with them,” he told IBTimes.
Arguably, the site’s biggest success story is The Wake, by Paul Kingsnorth; a story detailing the resistance of the invasion of 1066, but written in its own language. Given this quirk it was perhaps unsurprising that mainstream publishers weren’t interested. However the Unbound community supported it wholeheartedly, wth 400 people pledging money towards it; it ended up being shortlisted for the Man Booker Prize.
Unbound is now publishing around 8 books a month, having published 40 to date. For more information, or to invest in one of the books, visit unbound.co.uk
Bitcoin surges as ‘Grexit’ looms
Bitcoin saw a 7 percent surge today, as concerns of a Greek exit from the EU drove Greek depositors into the decentralized digital currency.
The web-based “cryptocurrency” was invented six years ago, and is unregulated by government or central banks, meaning its value fluctuates according to demand. Today’s price increase willl signal the currency’s longest winning streak in 18 months.
Joshua Scigala, co-founder of Vaultoro.com, a Bitcoin-gold exchange told Reuters that over the past two months of Greek negotiations, there had been a 124 percent increase in inflows from Greek IP addresses.
“Some people aren’t waiting for the government to figure out an exit plan and are doing it for themselves,” Scigala said. “You have people worrying about their families’ wealth or their life savings, and worrying that their money might be locked up in banks… they would rather hold money in a private asset like gold or bitcoin.”
Sony embarks on record breaking crowdfunding project
Sony has raised a $2 million in one of the most popular rounds of crowdfunding ever. It broke the record for a video game raising $1 million in the shortest time frame. It received pledges of $1 million in 46 minutes, second only to Pebble Time Watch who raised $1 million in 30 minutes.
Sony is raising funds to develop computer game Shenmue 3 in collaboration with gaming end users. The pitch raised its minimum target of $2 million in just over 9 hours and now has 30 days to raise additional funds.
The crowdfunding project was announced at the E3 electronic entertainment expo in Los Angeles in Sony’s press conference.
Sony is the latest corporate to adopt a crowdfunding strategy, not only to raise funds, but to involve the fans and consumers in the development of new products and services.
Earlier this year, London listed Hornby launched an Airfix crowdfunding project that gave model enthusiasts the opportunity to select a vintage model they would like to be manufactured. The one with the most votes will be produced and the backers will receive a kit.
Sony and Hornby’s strategy is representative of a wider research and development trend.
Having the consumer decided which products they would will be willing to buy and financially backing the products, not only cuts development costs but also marketing expenses. We see this trend continuing and watch with interest to see the next innovative crowdfunding project from an established corporate.
Berkeley Group Holdings profit builds by 42%
Berkeley Group Holdings (LON:BKG) soared in early trade after it announced a 42% rise full-year pre-tax profit to £539.7 million. Revenue rose 30.8% to £2.12 billion.
The house building group shrugged off any impact from the general election saying it was experiencing “normal market conditions with good underlying demand.”
“We welcome the stability in Central Government following the General Election and the commitment to increase housing supply, but political uncertainty remains with the London Mayoral Election and referendum on Britain’s relationship with Europe on the horizon. Berkeley is a supporter of the U.K. remaining in Europe as this is the best way for London to remain a world city” said Chairman Tony Pidgley.
Berkeley Group accounts for roughly 10% of the capital’s construction projects and has a broad range of properties ranging from those costing in excess £2 million to affordable housing.
The success the group has enjoyed across it’s 74 London sites has allowed them to confirm a 90p dividend payable in September. Shares traded at 3422p at 9:50am London time, up 8.3%.
Apple launches streaming service
Apple have launched their music streaming service, Apple Music, in a bid to enter the competitive music market.
Whilst Spotify makes up 85% of the music on-demand market, other companies have recently tried to cut in on the trend, including Jay-Z’s new Tidal service.
Both Spotify and Apple Music have huge catalogues, but Apple Music is likely to have more. It is likely to have 35 million tracks, compared to Spotify’s 30; Apple’s service will include artists like the Beatles, who have so far held out against streaming companies.
Because Apple can integrate its music service with iOS, the new service will be easier to use on iPhones and other Apple devices; for instance, Siri can control what’s playing, and the new proactive Intelligence assistant can bring up music that it thinks you’ll like. More than 800 million people use Apple to some extent, so they have the benefit of a ready audience and a huge market to tap into.
by Miranda Wadham
The death of the bond proxy stocks?
Those companies that offer low stable growth, steady dividends and low volatility have been used by investors and fund managers as ‘bond proxies’.
Low interest rate environment companies, typically in the utilities, consumer staple, pharmaceuticals and property sectors, were added to portfolios to replace near zero yielding bonds.
Over the past 5 years these sectors have enjoyed strong gains and valuations now look stretched; if you introduce a rate hike and slower growth these sectors could be hit particularly hard.
The P/E ratios of bond proxies are a real source of concern. Since the financial crisis and the subsequent extended period of record low interest rates investors piled into dividend paying stocks in a desperate quest to attain yielding assets. The FTSE 100 Utility sector now has a higher average forward PE than the Life Insurance and Banking sectors; this is fine if growth remains steady and interest rates low, however as anyone who follows financial news knows, rates are not going to remain low forever. In fact, rates are looking likely to rise this year, particularly in the US.
A rate rise and the impact on the stock market is a well-researched topic – generally the initial aftermath of a rate hike is negative for equities. The kneejerk sell off is usually followed by a rally as the first rate hike is almost always the result of a strengthening economy. which in turn supports corporate earnings.
From an investors point of view, it is always important to be mindful that certain sectors underperform and outperform given the economic and political backdrop. The problem going forward for bond proxies boils down to risk; in particular, the risk investors take to obtain a yield.
In a low interest environment with bond yields below 2%, investors are forced towards risky assets such as equities that may yield upwards of 3%. This paradigm has been observed since the 2007-2008 financial crisis and bond proxy sectors have gained substantially.
However, the US 10 year treasury yield has been rising for a number of months after hitting lows in early 2015 and is trending towards yields in excess of 3%. The same is true of UK 10 year gilts, albeit with a slightly lower yield.
If yields continue to rise, investors are given the luxury of asking themselves; why am I risking my money in relative risky companies when I can give it to the US or UK government and receive the same yield?
Although the prospect of capital appreciation is limited with bonds, so is the risk of a capital loss. The same cannot be said of companies like Unilever, Centrica and AstraZeneca.
Stocks are notoriously volatile when compared to bonds, and volatility in bond proxy stocks is only likely to increase as bonds begin to become a viable option for investors as they dispose of their proxy stocks.
There may also be a snowball effect as the share prices of bond proxies drop, further unnerving an increasing amount of investors who look at the high valuation and question their medium term prospects.
As previously mentioned, classic bond proxy sectors are trading at higher valuations than those sectors that typically benefit from rising rates, such as the financial sector. In addition, banks tend to perform better when interest rates rise; a rotation out of bond proxies into financial stocks will also add to the potential downside pressure.
There are also other sectors than tend to rise with interest rates, but this is more down to the underlying improvements in economic activity as opposed to direct benefits of higher interest rates. The timing of any change to the current investment environment is inextricably linked to the Federal Reserve and Bank of England and their judgement of when rates should rise.
As both institutions have said, a rate hike is dependent on economic indicators; ultimately it is likely the share prices of bond proxies will be negatively correlated to economic strength for a period in the next 12 months.
The new ‘class ceiling’
It seems that the glass ceiling is being replaced by a class ceiling, as findings report that the UK’s most elite financial services and legal firms operate a “poshness test” when hiring.
According to a report published today, as many as 70 percent of the jobs offered in 2014 were to graduates educated in selective state and fee-paying schools, said the report from the government-appointed Social Mobility and Child Poverty Commission.
“This research shows that young people with working-class backgrounds are being systematically locked out of top jobs,” said commission chairman Alan Milburn.
Interview questions often ask about holidays the applicant has been on, places visited and languages known, belittling or cutting those who come from disadvantaged backgrounds who cannot afford to take “gap years”. Very occasionally, the report said, a person’s accent can be an obstacle to obtaining a job.
The report has caused high-profile figures to speak out against its findings; the City of London Corporation has called for greater social mobility, with Boris Johnson that saying firms should focus on the “skills, talent and energy” of applicants. In an article for The Independent, journalist Janet Street Porter agreed, writing:“I were a boss, I’d be less likely to employ someone who’d spent a gap year travelling and doing voluntary work abroad”, advocating getting a part time job instead of travelling to gain valuable experience in the real world.
By Miranda Wadham