With all of the shares and loans now sold in our second investment property, Portsmouth No. 1, it’s a good time to take a look at how the property is performing, and what happens now that it’s open in the Resale Market.
Once all the shares and loans in a property investment are sold, it’s opened up to the Resale Market. Here, investors can either list some or all of their shares and loans for sale to access funds early or buy into an investment they may have missed out on first time around. Other investors can then bid on the listed items. So it’s important to remember that selling in the Resale Market is subject to demand, and there is a modest selling fee involved (1% for shares, 0.5% for loans). Read more here.
So far, interest and dividends paid to investors have been in line with our financial forecasts.
While property prices in the UK have seen large variations since the middle of last year, the overall trend has been a very modest move higher as seen by the green line in the chart below (Fig. 1). Flats in Portsmouth have generally done a little better as can be seen from the blue line.
Fig. 1: Price comparison of Portsmouth No. 1 versus Portsmouth flats generally and the broader UK housing market. Source: British Pearl, independent RICS valuation dated July 2018 and Land Registry HPI data to December 2018.
The British Pearl investment is estimated to have done better than the overall market both nationally and locally (Fig. 1). Why is this? The key reason is that the properties were purchased with help from an underwriting vehicle and as cash buyers we were able to move quickly. With the developers being close to selling all of the units available in Enterprise House, we were able to secure a discount of 7% with a total property price of £325,000 compared to the open market valuation at the time of £350,000 (as confirmed by the RICS valuation dated July 2018).
Since then, the property price is estimated to be £354,426: representing a gain since purchase of 9% (Fig. 2).
Fig. 2: Price comparison of Portsmouth No. 1 versus Portsmouth flats generally and the broader UK housing market. Source: British Pearl, independent RICS valuation dated July 2018 and Land Registry HPI data to December 2018.
The key benefits to investors of this change are:
Loan Investors: the loan-to-value (LTV) is now estimated at 64.2%, down from the initial 70%, giving more equity protection and therefore a lower overall risk profile.
Share Investors: the increased property value and leverage mean that the Indicative Share Price is now £1.09 (with a ‘sell’ price of £0.99 and a ‘buy’ price of £1.19. Read more here).
LTV is the ratio between the value of the loan and the value of the property as a whole. So as the LTV comes down, Loan Investors have a bigger equity cushion to absorb potential losses, and Share Investors are less exposed to property value changes.
While there are near-term uncertainties facing all asset classes from government bonds to stocks and shares through to property, we believe that the medium-term outlook remains positive. On top of that, by buying well and utilising a cash funded underwriting vehicle, opportunities can always be identified.
James Newbery is Investment Manager at British Pearl
When you invest with British Pearl, your capital is at risk and invested sums are not covered by the Financial Services Compensation Scheme (FSCS). Forecasts are not guarantees and performance may vary. Tax treatment depends on individual circumstances and may change. Resale Market trading is subject to demand and price. Read our key risk statement.