With all of the shares and loans now sold in our Andover investment property, 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), with gains on share sales subject to the 20% Success Fee. Read more here.
So far, interest and dividends paid to investors have been in line with our financial forecasts.
Property prices in the UK have seen large variations over the past year with the general trend since we purchased the Andover property being a modest move lower as seen by the green line in the chart below (Fig. 1). Flats in Andover have generally moved in line as can be seen from the blue line.
Fig. 1: Price comparison of the British Pearl Andover property versus Andover flats generally and the broader UK housing market. Source: British Pearl, independent RICS valuation dated October 2018 and Land Registry HPI data to February 2019.
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 property was purchased with help from an underwriting vehicle and as a cash buyer we were able to move quickly. With the seller needing to act as soon as possible, we were able to secure a discount of 14% with a total property price of £120,295 compared to the open market valuation at the time of £140,000 (as confirmed by the RICS approved valuation dated October 2018).
Since then, the property price is estimated to be £136,919: representing a gain since purchase of 13.8% (Fig. 2).
Fig. 2: Price comparison of British Pearl Andover property versus Andover flats generally and the broader UK housing market. Source: British Pearl, independent RICS valuation dated October 2018 and Land Registry HPI data to February 2019.
The key benefits to investors of this change are:
Loan Investors: the loan-to-value (LTV) is now estimated at 52.7%, down from the initial 60%, 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 £1.11. 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.
Andover remains a great location for businesses to invest in, with good links to London, the South and the West Country. The Andover Vision 20-year plan is in place with the goal of promoting Andover as a business hub as well as making strides in terms of health and wellness for all inhabitants.
As part of this plan, there is a recognition that people are increasingly using alternative retail methods, rather than solely using the high street for shopping. Planners need to think outside the box and adapt to these changes. As part of this thinking, Test Valley Borough Council has bought the ‘Chantry Centre’ located in the town centre, in a major deal worth £7.2million. This will allow the council to push forward with a project of creating a ‘Cultural Quarter’ on the former Magistrates Court site while also undertaking works to provide a major redevelopment.
Looking more broadly, while we acknowledge 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 Director 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.