Friday 30 September 2016

Real deal: The business of property

Philip Farrell

Published 01/05/2016 | 02:30

'Crowdfunding is a relatively new concept to the property investment market globally. To date in Ireland there has been a minimal crowdfunding offering for investors but be under no illusion, its arrival is imminent' (Stock photo)
'Crowdfunding is a relatively new concept to the property investment market globally. To date in Ireland there has been a minimal crowdfunding offering for investors but be under no illusion, its arrival is imminent' (Stock photo)

Crowdfunding is a relatively new concept to the property investment market globally. To date in Ireland there has been a minimal crowdfunding offering for investors but be under no illusion, its arrival is imminent.

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The attraction is that it allows the consumer to invest from as little as €50 upwards in one or more properties.

The concept is that a Special Purpose Vehicle (SPV) is created which purchases the properties. Parties interested in investing are brought together via an online platform which is an investment portal. In return for their investment, they receive a yearly dividend and a share of the capital secured once the property is sold. Most of the providers in the market take a three- to five-year view. But if an investor wishes to offload their shareholding sooner, they can do so online.

The big plus from an investor's perspective is that they don't have to manage tenants or properties or worry about void periods. On top of that, if an investor commits to, say, €10,000 investment, the risk can be spread over a variety of properties once it is a regulated fund. The returns are a little lower than if the investor was managing the property themselves, but the yields extend up to 5pc net which seems very attractive compared to the 1pc that can be achieved on deposit.

The approximate costs to the investor are 2pc of the initial investment plus approximately 10pc of the annual rental income. The types of properties chosen tend to be low risk in areas of high demand. If you were to try and compare it to other offerings in the marketplace, it could be described as similar to a REIT for the smaller investor. Providers in the UK include Propertypartners.co, alphaflow.co.uk and propertymoose.co.uk. Most providers have evolved over the last two years but it is clear they are here to stay.

The numbers game

The figures released by the CSO this week serve to highlight the supply issue that exists, especially in the greater Dublin area. The Dublin market is currently very flat with levels of sales down year-on-year with the small increase in prices - 0.9pc - witnessed in March as a result of pent-up demand.

Average national values are up 7.4pc year-on-year compared to 16.8pc in the previous 12 months. Average prices nationally still remain 35pc off the artificially high levels of 2007.

Another interesting aspect of the figures is that values are down 0.2pc outside Dublin, reversing a trend that goes back to January 2015. What does this tell us? It would appear that following the boom years and subsequent crash that both Dublin and the rest of country have now fully experienced the bounce or rebound. Is this what the true value of property should have been at in 2007? Food for thought.

The much-criticised borrowing restrictions introduced by the Central Bank last year were reaffirmed only this week by Professor Philip Lane. The fact still remains, however, that not enough houses are being built in our larger urban areas and expensive modular homes are not the solution. Rents and prices will continue to rise, especially in Dublin, with an upward trend likely to prevail.

Nama portfolios up for sale

News reached us this week that Nama is at an advanced stage in selling a large tranche of development land, formerly owned by Dominic Daly's Albany group. The six sites located in the prime residential towns of Swords, Leixlip, Naas and Newbridge were placed on the market with a price tag of around €45m. There was significant interest in the sites from the outset because of the shortage of ready-to-go building land in Dublin and its surrounds. All told the six sites will comprise of approximately 1,500 homes of various types when complete. Indications early on were that it was likely to be sold in one or two lots as opposed to individual units. It's rumoured that the purchaser is Ardstone Capital who have been active in 2016 in targeting residential development sites in Ireland. Indications are that the final figure will be closer to the €50m mark.

Busy times for Nama in the area of disposal with a number of other portfolios at advanced stages of negotiation. Projects Ruby and Emerald, which include large numbers of apartments in Dublin, are about to enter the second round of bidding. Project Abbey, which comprises of Pat Doherty's Harcourt Developments' assets, has also entered round two with bids due in mid May.

Even so, the era of large portfolio property sales is coming to a close in Ireland. It's a phenomenon that has fundamentally changed the nature of the property owner in Ireland. Many are critical of this type of investor because of the nature and history of the stock involved, but keep in mind, they arrived to Ireland at a time when the market was non-existent and helped to provide a base for recovery.

All for a good cause

It was a jam-packed audience last Sunday night at the Olympia theatre for the INM Rock against Homelessness concert where a red hot line-up played to raise funds for charities for the homeless that included The Simon Community, Focus Ireland and St Vincent de Paul. It made abundantly clear the level of public awareness and empathy for the homeless and the willingness to do something to help. The Central Bank lending restrictions and the lack of supply of new homes are of no interest to those suffering. They have a much simpler need: somewhere to lay their head.

Sunday Independent

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