An Englishman’s home is his castle.
Property is the UK’s largest asset class, roughly equal to equities and cash combined. Residential property alone in the UK is a nearly £7 trillion market. However, compared to other asset classes like equities (stocks and shares) or cash (money), there has been relatively little digitisation to date in the sector. This combination makes Proptech an attractive sector for entrepreneurs who want to build businesses in the space. In an an industry traditionally filled with friction — sourcing, gazumping, conveyancing, renting, maintaining — we are seeing property move towards the increased flexibility and accessibility that has been the hallmark of fintech successes of the last few years across crowdfunding, peer-to-peer lending, foreign exchange purchases and other financial services marketplaces.
Consumers are getting shut out of the property market
Owning a home is much more than bricks and mortar. It’s a source of stability, a roof over one’s head, and the chance to accumulate wealth. But for many people in Generation Rent, this traditional marker of adulthood is getting further out of reach. Median price paid for a home leapt 259% between 1997 and 2016 while earnings rose only 68%, say ONS affordability data, with the average age of a first-time buyer has been rising for 20 years and is now 32. As many as 41% of young people expect not to be able to participate at all in any form of property ownership, according to Bricklane.com (a Localglobe.vc portfolio company). Yet while in many industries, young people have moved away from the ownership model (music, video, automotive, etc.), the desire for home ownership remains strong within this younger cohort. Thoughtful companies like Bricklane.com, which allows customers to invest in a basket of properties with as little as £100, as well as Property Partner, CapitalRise and other crowdfunding models, are providing a new model for access. For people who are saving for a deposit, they’re a way to keep apace with the property market while they save.
Market Trends
Interest rates are at record lows and savers are hunting for yield, but new tax penalties and the hassle of being a landlord mean that traditional buy-to-let investors are failing to enter the market and in many cases, leaving it altogether. A new breed of digitally-savvy savers/investors, who are used to consuming investing products online still want access to property investing though. Example of companies that are working to remove friction from this space range from established digital players like Zoopla (an LG portfolio company) who have made sourcing a property much easier, to the new breed of digital mortgage brokers like Trussle.com (an LG portfolio company) or Habito, who are tackling things from the access to financing angle.
At the same time, the last few years have seen an increase in the growth of passive led investment approaches — ETFs, index funds, target lifecycle funds that rebalance automatically, etc. — which provide access to an asset class cheaply and efficiently, as opposed to picking an individual stock.
Bricklane.com combines these trends and allows customers to become buy-to-let landlords with a small initial investment, from their smartphone or their desktop, in under 10mn. They can choose where — of London or the Regions — they wish to deploy the capital. By using technology and important data partnerships, the company has generated attractive returns — 8.5% annualised performance in their Regional Capitals fund, and 8.7% in their London fund in 8 months. There is no capital gains or income tax on the investment if savers choose to open to transfer an ISA or a SIPP with Bricklane.com. They charge a one time fee of 2% fee on entry, and a 0.85% fee for managing the property, which is similar to what you would pay an estate agency to manage a buy-to-let — and a lot less hassle. At the same time, the company is committed to being a responsible and responsive landlord for tenants living in Bricklane properties.
Institutional investors
Institutional appetite for the sector remains strong as well. Sigma Capital’s PRS REIT plc (“Private Rental Sector Real Estate Investment Trust”) IPO’d in May 2017 and has raised a total of £500m from institutions who are looking for inflation linked income streams in the form of rents. Pension funds and local authorities are the main institutional funding for Heylo, the shared ownership scheme Heylo. Across the pond, Blackstone’s Invitation Homes REIT has raised $154B in its recent listing. Buying and managing properties at scale is a big technological challenge, and a source of defensibility for those who have cracked it.
There are risks in any kind of investment, and you should definitely consult an advisor (not me, a stranger on the internet!). Property prices move up or down, redemptions can take time, and a lot of people think property prices will soften due to Brexit uncertainty. That said, ahead of ISA season, I’m pleased to have invested some money in my Bricklane.com ISA. If you want to find out more about them, check them out here.
