In the second instalment of our Risk Management with CrowdProperty series, we take a closer look into your CrowdProperty Portfolio and explore how building a diversified portfolio can help mitigate risk and balance your flow of returns
As previously mentioned, of the £237 million paid back to investors to date, 58% was repaid in full before the contract end date and 42% repaid after the contract end date. This has an impact on how your portfolio displays.
A key factor when looking at your portfolio is to ensure you consider your overall portfolio as a whole. As later-running loans remain in your active portfolio, you should consider paid back and active together.
If a large proportion of loans have already repaid, these repaid loans would naturally skew towards the earlier-repaid loans. Any portfolio will expect to have a proportion of loans running late, and loans repaying early will mean that your active portfolio looks proportionally more late.
To look into this further, illustratively, if you invest £100 in each of 4 different projects, it is possible that 2 of those projects, and therefore £200 plus interest, will be repaid on or before the contract end date. This means 2 projects and £200 of your invested capital may exceed the contract end date. Of these 2 projects, if 1 project repays after 3 months and 1 project is now more than 12 months late, 25% of your total portfolio is running 12 months or more late. However on your account page, the graph will show that 100% of your active portfolio is late. Therefore, your total portfolio performance (shown in the table above the main account graph), not just your active portfolio, should be considered in assessing the proportion of loans that are late.
This illustration aims to highlight why it’s important to consider your paid back portfolio too, otherwise there will be a later running loan bias on your active loan portfolio. Of course this doesn't change the total amount invested in late running loans, but does put the extent of late loans relevant to the total amount invested into context.
External factors, including recent economic challenges, rising interest rates slowing property market transactions and extending sales periods, have affected loan timelines. This is not unique to CrowdProperty - these challenging times affected the entire property development industry.
These challenges began to ease through the back end of 2023 and coupled
with the latest inflation figures (annual CPI at 2.3% as at April), and developers out shopping again (with a record £1bn of projects applying for finance from CrowdProperty in April) shows that the market is regaining confidence and transactions are moving again, which we are seeing in both our new business and loan exit pipelines.
We manage all loans carefully and actively, and in our next email we will hear again from our Chief Credit Officer, Andrew Hall who will go into more detail about market conditions and the work our Credit and Portfolio teams do to support the successful completion and redemption of a loan.
The macro economy and property market factors do have a considerable bearing on the timescale to take loans through to redemption, and that’s part of the reason we carefully follow, and communicate key market considerations in our monthly State of the Market report.
Offering up to 8 projects per week, we empower private investors to build a diversified portfolio of property development loans, with the average platform investor lending across 88 projects. This is good investment practice and on average smooths the impact of the timing variance of some loans paying back early and some late.
It is important to remember this is a high risk and illiquid investment. CrowdProperty does not have a secondary market and once your funds are invested you cannot exit a loan until we received a repayment from the borrower. We appreciate the frustration when a loan goes late which is why you receive an additional 2% p.a. for the late period (hence the realised average return typically being higher than your contract return outlined above).
If there is anything specific you would like to hear more about as part of this series then please don't hesitate to get in touch on 020 3012 0166.
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