Landbay Results – 12 Month

12 Month Results

The first year of investing through Landbay is up, and the results are as follows –

Expected ROI 3.68%
Actual ROI 3.28%

As you can see the the ‘expected ROI’ has dropped marginally. This is because most of the investment is in a fixed rate of 3.69% however this fund was closed a few months ago, with the the new fixed rate fund offering 3.49%, as the returns are reinvested in the new lower rate fund this is causing a downward pressure on returns.

What is less easy to explain is the increased deficit between ‘expected’ and ‘actual ROI’. It is true February is a shorter month which would have a marginal difference on the run rate of ROI at this time of year. The other factor that could be causing the gap to widen is a significant drop in demand. Now considering Landbay reserve the right to queue funds in times of exceptional demand for up to 6 weeks, something i witnessed early on in this fund (informed by a notification on the fund at the time) this is not something i have witnessed since. Along with this the time that monthly returns are queued for reinvestment seems to be increasing, sometimes as long as 2 weeks. This could be indicating a significant drop in demand for new investment.

Now the length of the queue for reinvestment should not have a negative impact on returns as Landbay is one of the few platforms that accrue returns on queued investments. Looking at the wider situation, Landbay is heavily London centric (55.01% Greater London) and average London house prices have fallen back 1.5 – 2% over the last 12 – 18 months , with predictions for 2018 seeing a further drop. This will no doubt cause some pressure on the Landbay portfolio but still does not fully explain the deficit. Fund roll up (first month not being a complete month) from my own strategy could also play a part, although this was not evident in the 6 month review. I have contacted Landbay for further clarification on the cause of the drop in return and will repot back as soon as i have a response.

As mentioned previously, the latest fixed rate fund is now at a lower 3.49%, this fund is also now based on 25 year mortgages (as of January 2018) rather than previously 10 year mortgages. This is not necessarily a problem as Landbay do offer sell out early options (dependant on a buyer being available) but it does indicate Landbay seem to be seeking increased stability.

As for Landbay‘s future within my portfolio, February 2018 has been the first month i have experienced an issue with the expected rate of return, of course i will look in to this further before drawing a definitive judgement. It has always been difficult to get exited by Landbay’s rate of returns (current 3% inflation) with not much more than 0.5% annual return in real terms. That said i still view Landbay as a foundation fund to a diversified portfolio, but it’s meagre returns are restricting me to keep Landbay as a  relatively minor player in the overall portfolio. One big plus for me staying with Landbay beyond the returns, is it’s substantial wealth of research on the UK property market, which has been invaluable in constructing pieces for this blog. Landbay’s place is safe in my portfolio for the time being.

UK Property Market Review 2016

UK housing figures

The total value of UK housing stock broke the £6 trillion mark for the first time by the end of 2016. When trying to gauge the health of the UK housing market its useful to look at several key figures.–

Home ownership – 2016 saw the lowest rates on record for UK home ownership at just 63.5%. This has fallen from 64.4% on the previous year and from an all time high of 73.3% in 2007. This figure is recorded annually but forecasts for 2017 are demonstrating a further decline. There are several reasons for this continued fall in home ownership : the continued shortage in new housing stock ; an ageing population occupying homes for longer than before ; prohibitive house prices in comparison to wages and credit or mortgages available on the market. All these factors combined are creating a perfect storm denying many the opportunity to enter the housing market.

New home construction rates – house starts in 2016 were 151850 units. This figure is up by some 8000 units on the 2015 figure of 143830 units. There does appear to be a gradual up turn in new house building productivity after years of sluggish construction, however the up turn will need to be sustained for some time to make any significant impact on the demands of the market as a whole. Current estimates cite a 500’000 unit shortage in homes across the UK.

Mortgage approvals – mortgage approvals for Q1 2017 declined slightly, down about 2% over the 3 months with an average of 67.84% approval rate. This is actually up slightly on the previous quarter of Q4 2016 which was 67.31%. This slight increase could be attributed to the additional new housing stock aswell as the materialisation of continued government incentives like ‘help to buy’. The latest decline however, for the start of 2017 could well be an anomaly attributed to the UK political situation. Article 50 triggered in March, local elections at the start of May and general elections announced in June could be giving financial markets cause for pause while the situation settles down, this would manifest itself as a tightening in lending policy to reduce financial institutions exposure to possible turbulence.

House prices – The latest UK average house price is £217,502. This is an increase by an average 0.35% on the previous quarter and a 3.8% increase year on year. This is the smallest increase in prices seen since May 2013, following a general consensus that the UK housing market is cooling. House prices in the UK should always viewed as two separate entities, the London market and the rest of the UK. London house prices are actually continuing to decline while the increase outside London is closer to 5%. A big factor in falling house prices in London is the exodus of foreign investors that have been artificially inflating the market for several decades. Conversely many of these investors are looking to alternative UK cities to invest their funds, applying an upward pressure to house and property prices outside of the capital.

UK commercial property figures

Commercial property is defined by any property utilised for the provision of jobs. This includes shops or retail space, industry and manufacturing, service and office space. Key figures worth noting for the analysis of the UK commercial property sector are as follows :

Total asset value of UK commercial property – the latest figures are £871 billion for the end of 2015 (this data is only complied annually, 2016 figures are still awaiting publication). This is the highest valuation to date for UK commercial property and makes up 13% of the overall UK built environment.

Level of investor activity in the UK commercial property sector – Investor activity in UK commercial property is currently in a state of flux. Investors are looking further a field than the capital for good opportunities but there has also been significant continued movement in 2016 on ‘who’ has been investing in the UK commercial property sector. Traditional UK institutions such as insurance and pension funds have been moving away from the UK with a drop of 10% over the last decade, where as overseas investors have increase by 125% over the same decade. What are described as ‘collective investment schemes’ are also up by 64% for the decade, this includes crowd funding platforms, Proptech & Fintech. There was a significant drop of 18% in investor activity around the Brexit vote however this has all but bounced back. So investor activity remains very strong in the UK throughout a changing investor landscape.

Key note commercial investments

The HS2 (High Speed Rail 2) – the HS2 finally passed its last major legislative hurdle in February of 2017. This huge UK infrastructure project is estimated to cost £60 billion but could run up to as much £100 billion by the time both phases are completed in 2033. The keynote contracts have now gone out to tender. This includes not just train, rail and cable contracts but also contracts for station construction in Manchester, Birmingham, Liverpool, Glasgow and Edinburgh. There is reportedly significant interest in these tenders from both UK and foreign investors for not just the construction but also the facility management and operation.

Crossrail 2 – Crossrail 2 is an extension of Crossrail 1 designed to bring the South West and North East of London together. The rail link is estimated to cost £30 billion but could also generate up to 200 thousand new homes along the route. The infrastructure project is still going through the funding and legislative motions and has not yet been finalised.

The Verdict

Home ownership has continued to stagnate and decline slightly in 2016 as private house rents are now significantly higher than a comparable mortgages, exacerbating the situation further, smothering the positive effects of the ‘help to buy’ initiative. There continues to be wide-spread speculation and stalling in the new house building sector, however there are signs that levy could be close to bursting, which would release a substantial upturn in new build activity. Mortgage approvals remain stable as some are able to obtain the required deposits for a house purchase though ‘help to buy’, altougth this is countered by the politically uncertain situation in the UK and some key indicators are now showing consumer debt over reaching to potential unsustainable levels. House prices are continuing to cool but rise marginly. Given the consistent upward demand in the UK housing its to see how house prices will fall significantly without a massive unpredicted shock to the economy (like a global recesion), so outlook is stable despite the uncertainty of Brexit.

Commercial property looks robust across the UK in 2016 making up a significant slice of the UK property portfolio. Although there has been movement in investor type in commercial property these voids seem to have been quickly filled with new technology platforms and hungry investors looking further a field than traditional the high street bank investments. There are also a number of major infrastructure investments and large developments in the pipe line across the UK with plenty of interest from investors.

So with the exception of the Brexit blip in June 2016 both housing and commercial investment sectors remain strong with plenty to be positive about for the future. Brexit remains the big unknown especially around the operations and future locations of the UK financial sector which could affect property though contagion, however with investments still so attractive in the UK despite head winds it’s difficult to see any major exodus happening post Brexit but it remains to be seen.