By Frazer Fearnhead, CEO and co-founder of peer to peer lending plaform The House Crowd
Debt-based property development crowdfunding – a form of peer-to-peer lending used to raise funds for property developments – is on the rise. But before investing in these types of property development projects, you need to know the benefits and risks. Let’s look at both.
Why use peer-to-peer lending to invest in property?
First, why is peer-to-peer lending growing in popularity as an alternative to traditional property investment strategies, such as buy-to-let? Simply put, it offers several advantages, including:
- You don’t have the hassle of actually owning and managing a property
- It can offer predictable, consistent returns
- Your cash isn’t tied up for years, as loans are often short-term
- Investment platforms help you spread capital across multiple loans, helping you to manage and mitigate risk
- You can start investing with as little as £1,000 on some platforms
- You are investing on a debt basis and therefore will get paid out before the equitable owners
Peer-to-peer property lending is therefore a great option for those seeking an alternative to traditional forms of property investment. It can be a valuable and reliable addition to any investment portfolio, particularly those geared towards saving for a long-term goal, such as retirement.
But, as with any type of investment,peer-to-peer development lending comes with a degree of risk. And if you want to do it right, there are a number of important things you should know before investing.
- Make sure your platform conducts due diligence
Before investing, then, you will want to see evidence of the property development research done by your chosen platform, including
- The results of a RICS survey
- A list of recent ‘sold’ prices in the area
- Prices per square foot achieved on similar properties
- Feedback from agents in the area
- Information on market liquidity
- Relevant economic forecasts
Similarly, your chosen lending platform should work with the best people at every stage of the project, even if it costs more. This ranges from the surveyor’s firm to picking contractors that will agree to a fixed price design, build contract and deadline.
All this will help you work out whether a project is worth investing in. If the platform does not volunteer this information, ask for it. And if they still won’t share it, look elsewhere.
- Understand how your investment will be repaid
Knowing how – or, more importantly, when – your investment will pay out is vital. As such, you should ask about the chain of investment, including the payment timeline.Some platforms will pay all capital and interest back to the investor at once; others will pay back all capital before paying out interest.
Debt-based investment offers greater security on this level, since it is always paid out before equity investment. And with a fixedrate investment, you’re earning interest until you are repaid, so you get consistent returns, even if the property takes time to sell.
- Make sure your money is protected
Any investment will come with some risk, but debt investors should be protected by a legal charge on the property. This will mean the property you’ve invested in cannot be sold without you being repaid.
Then, even if the borrower defaults, the developer can still force a sale of the property to safeguard the money invested.As an equity investor, by comparison, you have very limited protection. And if the development makes a loss or the borrower defaults, you could lose the money you put in.
- Check for planning permission
Making sure you have planning permission for a building project might sound obvious. But you’d be surprised how many property developers simply assume that they’ll get approved. It doesn’t always work like that, though, as it can be a complicated process.
Nobody likes it when a building site pops up next door, after all, so appeals from locals are common. And people can lodge an appeal both before and after permission is granted, which can lead to long and unexpected delays. So, to reduce your risk, you should always make sure the developer has completed the application process, with no appeals outstanding, before investing.
- Look beyond London for a development location
While London has been a hotbed of property investment for some time, it may now be better to look outside the capital, especially with Brexit hitting London house prices hardest.
For instance, forecasts suggest that property prices in the North West will continue to grow by around 21% over the next five years. In addition, the government’s ‘Northern Powerhouse’ campaign has boosted business in the region over the past five years, so people are moving there seeking work. And when people move somewhere in large numbers, demand for property inevitably grows.
In other words, there are great investment opportunities out there if you look hard enough. And it makes sense to consider a variety of market conditions and average price forecasts.
Should I invest in peer to peer property development lending?
The best way for you to invest your money will depend on your individual circumstances. But peer-to-peer property development lending can make up a key part of any investment portfolio, especially if you need to make solid, consistent returns to bolster your retirement pot.
And if you ask the right questions before investing, you can minimise the risk involved.
We’re also running a crowdfunding campaign on Seedrs in order to expand our product range, find out more here.
GameStop rally fizzles; shares still on pace for 130% weekly gain
By Aaron Saldanha and David Randall
(Reuters) – An early surge in the shares of GameStop Corp fizzled and left the video game retailer’s stock down more than 15% on Friday, throwing water on a renewed rally this week that has left analysts puzzled.
GameStop shares hovered around $94 after hitting $105 in late-morning trading. Despite Friday’s losses, the company’s stock is up about 135% for the week in the face of a broader market selloff that has sent the benchmark S&P 500 down about 2% over the same time.
Analysts have struggled to find an clear explanation for the rally, leaving some skeptical that it will continue.
“You might be able to make some quick trading money and it could be a lot of money, but in the end, it’s the greater fool theory,” said Eric Diton, president and managing director at The Wealth Alliance in New York. The theory refers to buying stocks that are over-valued in anticipation that someone else will come along to buy them at a higher price.
One catalyst that sparked GameStop’s rally in January – a high concentration of investors that had bet against the stock being forced to unwind their positions – does not appear to be as much of a factor this time.
Short interest accounted for 28.4% of the float on Thursday, compared with a peak of 142% in early January, according to S3 Partners.
Options market activity in the stock, which has returned to the top of the list in a social media-driven retail trading frenzy, suggested investors were betting on higher prices or higher volatility, or both.
Refinitiv data on options showed retail investors have been buying deep out-of-the-money call options, which are options with contract prices to buy far higher than the current stock price.
Many of those option contracts are set to expire on Friday, and would mean handsome gains for those betting on a further rise in GameStop’s stock price.
Call options, which would be profitable for holders if GameStop shares reach $200 and $800 this week, have been particularly heavily traded, the data showed.
“The actors are looking to take advantage of everything they can to maximize their impact and the timing is important,” said David Trainer, chief executive officer of investment research firm New Constructs. “The options expiration will contribute to their strategy on how to push the stock as much as they can and maximize their profits.”
Bots on major social media websites have been hyping GameStop and other “meme stocks,” although the extent to which they influenced market prices is unclear, according to analysis by Massachusetts-based cyber security company PiiQ Media.
GameStop’s stock is still far from the $483 intraday trading high it hit in January, when individual investors using Robinhood and other trading apps drove a rally, forcing many hedge funds that had bet against the video game retailer to cover short positions.
Other Reddit favorites were also lower, with cinema operator AMC Entertainment down around 5.5%, headphone maker Koss off about 25% and marijuana company Sundial Growers down less than 1% in Friday trading.
(Reporting by Aaron Saldanha in Bengaluru; Additional reporting by Devik Jain and Sruthi Shankar; Writing by David Randall; Editing by Shinjini Ganguli, Anil D’Silva and Dan Grebler)
Stocks try to recover from bond whiplash, dollar gains
By Herbert Lash
NEW YORK (Reuters) – Global equity markets swooned on Friday, even as the Nasdaq and S&P 500 tried to recover and the bond rout eased a bit, but fears of rising inflation still weighed on sentiment as data showed a strong rebound in U.S. consumer spending.
Shares of Amazon.com Inc, Microsoft Corp and Alphabet Inc edged up after bearing the brunt of this week’s downdraft, while financial and energy shares fell.
The S&P 500 gained 0.80% and the Nasdaq Composite added 1.87%. But the Dow Jones Industrial Average fell 0.3%.
U.S. consumer spending rose by the most in seven months in January as low-income households got more pandemic relief money and new COVID-19 infections dropped, setting the U.S. economy up for faster growth ahead.
The benchmark 10-year Treasury note on Thursday touched 1.614%, the highest in a year, rocking world markets. The note’s yield is up more than 50 basis points year to date and is now close to the dividend return of S&P 500 stocks.
The 10-year note fell 1.7 basis points to 1.4977%.
The amount of money swirling through markets and U.S. stocks at close to all-time highs has caused investor angst, said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago.
“Many people are taking some profits and not necessarily reinvesting that money quite yet,” Kinahan said, but the tug of war isn’t over year.
“The U.S. equity market is still the best game in terms of safety versus opportunity. But there is a shift going on.”
The scale of the recent Treasury sell-off prompted Australia’s central bank to launch a surprise bond buying operation to try to staunch the bleeding.
MSCI’s benchmark for global equity markets slid 0.83% to 661.49.
In Europe, the broad FTSEurofirst 300 index closed down 1.64% at 1,559.48. Technology stocks lost the most as they continued to retreat from 20-year highs.
The dollar rose against most major currencies as U.S. government bond yields held near one-year highs and riskier currencies such as the Aussie dollar weakened.
The dollar index rose 0.578%, with the euro down 0.78% to $1.2081. The Japanese yen weakened 0.42% versus the greenback at 106.66 per dollar.
Gold fell more than 2% to an eight-month low, the stronger dollar and rising Treasury yields hammered bullion and put it on track for its worst month since November 2016.
Benchmark German government bond yields fell for the first time in three sessions but were still headed for their biggest monthly jump in three years after rising inflation expectations triggered a sell-off.
The 10-year German bund note fell less than 1 basis points to -0.263%.
European Central Bank executive board member Isabel Schnabel reiterated on Friday that changes in nominal interest rates had to be monitored closely.
Copper recoiled after touching successive multi-year peaks in six consecutive sessions, falling more than 3% as risk-off sentiment hit wider financial markets after a spike in bond yields.
Three-month copper on the London Metal Exchange (LME) slumped to $9,112 a tonne.
MSCI’s Emerging Markets equity index suffered its biggest daily drop since the markets swooned in March. MSCI’s emerging markets index fell 3.06%.
The surge in Treasury yields caused ructions in emerging markets, which feared the better returns on offer in the United States might attract funds away.
Currencies favoured for leveraged carry trades all suffered, including the Brazil real and Turkish lira, which slid for a fifth straight day, erasing all the year’s gains.
Asia earlier saw the heaviest selling, with MSCI’s broadest index of Asia-Pacific shares outside Japan sliding more than 3% to a one-month low, its steepest one-day percentage loss since the market rout in late March.
Oil fell. Brent crude futures fell $0.78 to $66.1 a barrel. U.S. crude futures slid $1.24 to $62.29 a barrel.
(Reporting by Herbert Lash, additional reporting by Tom Arnold in London, Wayne Cole and Swati Pandey in Sydney; editing by Larry King and Nick Zieminski)
European shares drop as high yields spark profit taking in tech, resources
By Shashank Nayar and Ambar Warrick
(Reuters) – European stocks closed lower on Friday, ending three weeks of gains as investors booked profits in technology and commodity-linked shares due to concerns over rising inflation and interest rates on the back of a jump in bond yields.
The benchmark European stock index fell 1.6%, and shed 2.4% for the week – its first weekly loss this month – with technology stocks losing the most as they continued to retreat from 20-year highs.
On the day, resource stocks were the softest-performing European sectors, tumbling 4.2% from a near 10-year high in their worst session in five months.
“Equity markets across the U.S. and Europe are quite expensive now and with bond yields constantly rising, the fixed income market is proving to be more attractive than the riskier equity market,” said Roland Kaloyan, a strategist at SocGen.
“Investors are actually looking at the pace at which yields drop and the current speed is quite concerning for equity markets.”
U.S. and euro zone bond yields retreated slightly on Friday, but stayed close to highs hit this week as investors positioned for higher inflation this year. Yields were also set for large monthly gains. [GVD/EUR] [US/]
Sectors such as utilities, healthcare and other staples – usually seen as proxies for government debt due to their similar yields – lagged their European peers for the month as investors sought better returns from actual debt.
Still, the benchmark STOXX 600 gained in February, helped by a rotation into energy, banking and mining stocks on expectations of a pickup in business activity following vaccine rollouts.
Travel and leisure was the strongest sector in February as investors bet on an economic reopening boom. Banks also outperformed their peers thanks to higher bond yields.
Better-than-expected fourth-quarter earnings have also reinforced optimism about a quicker corporate rebound this year. Of the 194 companies in the STOXX 600 that have reported quarterly earnings so far, 68% have beaten analysts’ estimates, according to Refinitiv.
“As recovery hopes gain ground with the economy re-opening and vaccines coming up, coupled with earnings being relatively positive, the near-to-mid-term outlook for equities seems positive with yield movements still a part of the equation,” said Keith Temperton, an equity sales trader at Forte Securities.
Among individual movers, Belgian telecom operator Proximus was the worst performer on the STOXX 600 for the day, after it flagged a lower core profit in 2021.
(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Sriraj Kalluvila and Hugh Lawson)
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