We all remember that fateful morning two years ago on 24 June when the morning news brutally slapped us awake into the reality of Brexit.
By Parul Scampion, co-founder, Propio
The shock result of the Brexit vote quickly presented an opportunity for investors to make a killing by piling into badly hit stocks. This soon created a real problem for UK property fund managers.
Plummeting public confidence – as well as the truck loads of property equities and REITs held by many investment funds – hit values and the chaos that followed saw an exodus of investors and a gating, or lockdown of withdrawals, of many funds. Ironically, most institutions – understanding that property investments will always encounter bumps in the road – were relatively comfortable. But the outflows experienced by investment management firms for private individuals were concerned – and the PR disaster that accompanied the whole affair still lingers.
The lead up to the referendum vote saw property funds holding high levels of cash in case they faced a raft of withdrawals, which negatively impacted overall fund performance due to the poor returns generated by cash.
As a result of the pro-Brexit vote many such funds were forced to rush through the sale of properties to return cash to panicking investors. Seven large funds, holding some £15bn between them, were forced to halt trading because of this problem – the fact that property takes months to sell, while funds promise to return cash to investors within 24 hours. This remains a problem today.
One of the great ironies was that a report by PwC for the Association of Real Estate Funds, ‘Unlisted funds – Lessons from the crisis’ – written four years earlier in 2012 – highlighted many obvious concerns, particularly the “non-alignment of interest between different types of investors”, specifically “the co-mingling of retail and institutional investors in the same vehicle”.
One of the upsides of technology is our ability to amplify transparency and give investors more control. Property’s continued classification as an “alternative asset” is in part due to its opaqueness and the challenge in comparing like-for-like assets. This isn’t helped if we, as guardians of people’s savings, aren’t wholly transparent or personally aligned with their investment strategy.
“Proptech will increasingly challenge the old guard and this is something the entire industry needs to embrace”
FCA-regulated online investment platforms like Propio can offer offer investors equity and debt positions in residential schemes with full transparency on management fees, transaction charges and of course risk.
From our perspective, we see regulation as an opportunity: banks, slimmed down and healthier than in 2009, have far less capacity to support small and medium-sized developers. This is why alternative lenders, which now make up roughly 10 percent of the market (or £16.1bn), can step in. Pricing this fairly and aligning everyone’s interests (which our founders do by investing in all of our available opportunities) ultimately offers a greater level of confidence.
While the debate over the finer points of Brexit is likely to continue for some time, one thing we can all agree on is the need to provide investors with more control and transparency.
Proptech will increasingly challenge the old guard and this is something the entire industry needs to embrace. By engaging far more retail investors – and doing so directly – we can help dispel many of the myths surround property finance, enhance the supply of capital yet further and, above all, help the public to see that homeownership isn’t the only way to invest in property.