HS2 and the Manchester 2040 Transport Strategy

HS2 and the Manchester 2040 Transport Strategy

We have already covered the ways in which the high speed HS2 rail plans will impact the towns, cities and regions along its route. If you missed this article, you can read it here. But how do the HS2 plans relate to the ambitious Manchester 2040 Transport Strategy?

The plans for HS2 link into the long term plans for the Manchester 2040 Transport Strategy, which seeks to further optimise the city for public transport. The HS2 is set to run from two stations in Manchester: Manchester Piccadilly in the city centre, and Manchester Airport. Journey times to London will be just an hour.

As well as the obvious benefits to commuters, and northern residents in general, another priority of the 2040 Transport Strategy will be the improvements to freight transport. This is an aspect that is seen as absolutely key to economic growth, providing sustainable commercial capabilities across the region.

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2040 Transport Strategy Aims To Create Idyllic Manchester

At the heart of the Manchester 2040 Transport Strategy is a move to a cleaner, greener city. Less traffic congestion, and more cycling and walking paths, for example, will reduce air pollution. Leisure and rental facilities, public parks and green spaces, and a thriving, increasingly mobile workforce, are all promised by the work going into Manchester.

Particular industries are being beckoned to the city: financial and professional services, academic research, scientific innovation, and creative and technological industries, are all being targeted as key areas of the global economy expected to generate the highest levels of economic growth.

What’s more, the city seeks to devolve powers from central government. Powers to legislate and fund the city’s transport, its housing, and its regeneration plans, are being brought under the domain of the Greater Manchester authorities. Power to the Powerhouse, as it were.

It feels like the Manchester 2040 Transport Strategy, of which HS2 (and HS3 for that matter) are a part, are being seen as central to the creation of a near-Utopian Manchester.

What Will the Manchester 2040 Transport Strategy Do For Property Prices?

Where HS2 is accompanied by regeneration plans, as well as the wider approach to community transport offered by the Manchester 2040 Transport Strategy, history demonstrates favourable results for property.

Though homeowners may be understandably concerned about the impact on property prices, examples from recent years demonstrate positive reactions. In fact, experience shows us that towns and cities along the route will outperform the rest of the UK.

One of these examples is the case of both Ebbsfleet and Ashford, two towns which have been served by high-speed rail networks since 2007. Striking figures show both towns to have demonstrated better resilience, and quicker recovery, from the recession than the UK average.

As well as demonstrating the positive effects of new stations and high-speed rail networks, and the urban regeneration which comes with them, the figures also demonstrate the positive effect that reduced journey times have on property prices. The high-speed rail network serving the towns has cut the Ebbsfleet-London commute to 19 minutes, and Ashford-London to 38 minutes.

Basically, sustained analysis of property prices correlated against high-speed rail networks highlights a trend towards increased region and town desirability in those areas served by high-speed rail.

By placing integrated transport hand-in-hand with urban regeneration plans and pumped-up industry, property markets can expect to flourish throughout the Northern Powerhouse, as well as the Midlands, and all areas right along the HS2’s route.

With increased productivity (expected to generate gains of £8bn by 2037), and reduced journey times as a result of the Manchester 2040 Transport Strategy will allow people both higher wages and more time to spend on leisure activities. Of course, this will also pump more money into the local economy.

To conclude, all of these many factors point to serious opportunity for property investors, particularly in areas in or close to Manchester. As we at The House Crowd already know, the region is absolutely ripe for the picking, and will only become all the more desirable in coming years.

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HS2 and Its Role in Powering the Northern Powerhouse

HS2 and Its Role in Powering the Northern Powerhouse

HS2 is the biggest expansion of the UK’s rail network since Queen Victoria was on the throne. The project aims to bring cities and regions closer to one another, as well as stimulate economic growth, catalyse investment, and create jobs. Combined with urban regeneration plans across the North West, and industry advancing throughout the region, HS2 promises to be one of the leading driving forces powering Manchester, as well as other midland and northern cities, such as Birmingham and Leeds.

Once all the planning and consultation has taken place, and work finally begins, the first phase of linking London and Birmingham is set for completion in 2026. This will be followed by a section running between Manchester and Birmingham, due to be completed in 2033. Clearly, it’s a long term strategy, but one that will ultimately have a significant effect on the evolution of regional economies as the plan comes to fruition.

As well as reducing travel times, another factor that promises to transform economic performance is that of reduced costs. Given the extortionate rail prices that commuters are currently subjected to, this would be a welcome development. Travel costs aside, cutting journey times will prove massively beneficial to commuters. The Leeds to Birmingham route will slash the two hour journey down to just 57 minutes, and more than halve the time from Manchester to Birmingham, from 88 to 41 minutes.

What evidence is there that these high speed rail links will really have an effect on economic growth?

Well, if you consider the Paris to Lille link, as well as the InterCity 125 network here in the UK, you’ll notice a trend within the connected towns, cities, and regions of a positive bloom in both economy, and general vibrancy.

The HS2 is also expected to increase the UK’s GDP by at least £15bn a year, as a direct result of increased rail connectivity. Productivity gains are also expected in the region of £8bn by 2037.

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Of course, what we are most interested in is how HS2 will drive property values in and around Manchester.

It’s fairly obvious that the economy is inexorably linked to the property market. With the growing economy catalysed by the new rail routes, come more businesses to move in, which, in turn, as a positive effect on population growth. Clearly, population growth drives housing demand, both in the rental and ownership sectors.

An exceptional increase in the demand for homes is expected all along the HS2 rail route. Where property prices in London have created a housing crisis that is untenable for many, the HS2 will provide a fast, simple transport route for those seeking to relocate to less unaffordable regions and commute into the capital. Not only this, but the already blossoming opportunities for careers and leisure in Manchester continue to make it an appealing option for those choked by the dismal state of London.

HS2 itself will deliver an extra 400,000 long term jobs all along its route and in surrounding areas. Even before its completion, 22,000 jobs will be created merely by its construction. These opportunities for workers will further supercharge the property market along the route – which, of course, is the key to fantastic property investment opportunities!
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The Alternative Finance Marketplace: How is Real Estate Shaping Up?

We’ve been eagerly poring through NESTA’s 2015 UK Alternative Finance Industry Report, ‘Pushing Boundaries’, since it was published in February this year. The report offers a fascinating, in-depth look at all areas of the alternative finance industry, including – crucially – the Real Estate Alternative Finance (crowdfunding and Real Estate P2P lending) market.

If you like data, you’ll love it. But if you’d prefer something a bit more readable, you’ll be pleased to hear that we’ve put together our own guide to the state of the alternative finance industry, keeping the emphasis squarely on Real Estate Alternative Finance, of course.

Things have changed since NESTA published its report, ‘The Rise of Future Finance’ in 2013. At that time, the alternative finance industry was worth £939m.  In 2015, NESTA reported its value at £3.2bn. The market is on course to surpass the £5bn mark in 2016.

Real Estate Alternative Finance - QUOTE 1

It’s not just financially that the alternative finance sector has grown. It has evolved taxonomically, too.

In the 2013 report, NESTA identified a range of distinct funding models operating in the sector. Two years later, 28% of alternative finance platforms surveyed reported that they were operating a ‘mixed’ or ‘other’ business model, which does not fit into the existing taxonomy.

Real Estate Alternative Finance: Crowdfunding and P2P Lending Tops the Tables

The 2013 report has no mention whatsoever of the terms ‘real estate’ or ‘housing’. And yet, by 2015, NESTA’s report segments data on Real Estate Alternative Finance into its own category, such is the proportion of the industry it covers.

In 2015, Real Estate and Housing was the most popular sector for the alternative finance market.

  1. Real Estate and Housing
  2. Technology
  3. Manufacturing and Engineering
  4. Food and Drink
  5. Retail and Wholesale
  6. Leisure and Hospitality
  7. Community and Social Enterprise
  8. Finance
  9. Construction
  10. Education and Research

Combined debt and equity-based funding for Real Estate Alternative Finance amounted to nearly £700m in 2015, with P2P business lending in Real Estate (for mortgages and property development) taking the lion’s share: £609m – 41% of the total volume of P2P business loans in 2015.

The market volume of equity-based crowdfunding is much more modest, coming in at £87m for 2015, still a very significant sum.

REAL ESTATE ALTERNATIVE FINANCE - QUOTE 2

P2P Business Lending in Real Estate

In 2015, P2P real estate lending financed over 600 commercial and residential developments, mostly by small to medium sized property developers.

Of that hearty £609m funding sum for 2015, Real Estate P2P lending saw increased growth throughout the year:

Q1 → £120.78m

Q2 → £146.81m

Q3 → £152.96m

Q4 → £188.12m

Perhaps some of this extraordinary success has something to do with institutional funding in the P2P Real Estate lending sector? Institutional funding was around 25% in 2015, and up to 75% on some platforms.

P2P business lending for Real Estate comprises a range of financing models and products. There are the short term bridging finance loans, which run for a 12 to 18 month period. Them, there are the longer term (3-5 years) commercial and residential mortgages, and construction/development debt finance.

In 2015, the average size of P2P loans for Real Estate came in at £522,333, slightly under 2014’s £662,425 average. The figure for 2015 was more in line with the average UK house price than the previous year. This may be due to the growing use of P2P lending in funding residential and commercial mortgages, rather than the larger developments focused on in 2014.

REAL ESTATE ALTERNATIVE FINANCE - QUOTE 3

Just a quick clarification point here: regulatory constraints mean you cannot use P2P Real Estate lending for your own residential mortgage.

It’s also not a done deal to apply for a loan for a Real Estate development: in 2015, 27.5% of loan applications in P2P Real Estate lending were accepted.

The average number of lenders required to fund a typical P2P Real Estate loan? 490.

REAL ESTATE ALTERNATIVE FINANCE - QUOTE 4

Equity-Based Crowdfunding for Real Estate

This model enables investors to acquire ownership of a property asset, via the purchase of shares, either of a single property, or a number of properties as part of a portfolio.

REAL ESTATE ALTERNATIVE FINANCE - QUOTE 5

In 2015, equity-based crowdfunding for Real Estate raised a total of £87m, for 174 development projects. This is how the annual quarters looked:

Q1 → £13.09m

Q2 → £23.16m

Q3 → £35.70m

Q4 → £14.63m

Equity-based crowdfunding for Real Estate had a great year in 2015. The record for fastest funding for a development project was set: £843,100 was raised in just 10 minutes and 43 seconds, from a total of 319 investors!

REAL ESTATE ALTERNATIVE FINANCE - QUOTE 6

Unlike P2P Real Estate lending, with equity-based crowdfunding, there is scarcely any institutional involvement. Of the 10,626 funders participating in Real Estate crowdfunding, NESTA found that only 3% were categorised as institutional investors by the platform. This contrasts with the 77% of sophisticated or high net worth investors in the model.

Yes, equity based crowdfunded property investment is much more grass roots in many ways than the P2P Real Estate sector. The recent inclination to lower minimum investment thresholds in this area, with the aim of enticing more retail investors attests to this in a very clear way.

Whilst 27.5% of loan applications in P2P Real Estate lending were accepted in 2015, in equity-based crowdfunding for Real Estate, platform acceptance rate was much lower. Only 2.9% of deals made it onto the platform, on average.

However, deal success rate for those who did make it onto the platform was pretty high: 87%. There are also far fewer investors required for an equity deal – NESTA reports an average of 150 per deal. The average deal size for 2015 in the crowdfunding sector for property was fairly high, too: £820,042.

Real Estate Alternative Finance and Manchester

Of the 58 alternative finance platforms surveyed by NESTA for their report, 62% were – unsurprisingly – London-based. However, a significant 5.2% hailed from our home city of Manchester.

Manchester is also one of a number of regional and local authorities that have either partnered with online alternative finance platforms to fund local SMEs, or have used alternative finance methods to fund community projects.

NESTA’s data shows that the most active regions receiving funds from Real Estate crowdfunding were London (of course), the North East, and the North West. The North West was also found to be one of the top 3 regions actually providing funds.

REAL ESTATE ALTERNATIVE FINANCE - QUOTE 7

This isn’t terribly surprising given the growing trend for emphasising Real Estate crowdfunding within areas in need of regeneration. Manchester has, as we know, come a very long way. The economy of the North West has been transformed over the last few years, in no small part due to the heavy investment in regeneration projects, in the form of development funding from both the public and private sectors.

It is these regeneration areas that are being identified as some of the potentially best investment opportunities. Not only do they cost investors less than prime locations, but these areas are also the ones that will experience the highest growth over coming years.

REAL ESTATE ALTERNATIVE FINANCE - QUOTE 8

Real Estate Alternative Finance and The Government

Direct investment from the government has helped support the growth of both peer-to-peer and crowdfunding markets. In 2015, £60m was lent by the British Business Bank via P2P lending platforms, specifically for SMEs.

Tax incentives have also been applied, including the EIS (Enterprise Investment Scheme) and SEIS (Seed Enterprise Investment Scheme). These schemes have been widely used, by a large proportion of investors using alternative funding platforms, and have been especially popular within the equity-based crowdfunding market.

The launch of the IFISA (Innovative Finance ISA) in April 2016 is also an exciting development in the alternative finance sector.

In particular, P2P business lending platforms for Real Estate expect the IFISA to generate a whopping 51.9% growth in transactional volume this year, whilst equity-based crowdfunding platforms for Real Estate predict 30.31% growth as a result of the IFISA.

REAL ESTATE ALTERNATIVE FINANCE - QUOTE 9

The figures for Real Estate Alternative Finance outmatch those elsewhere in the alternative finance market. P2P consumer lenders, for example, expect a 26% increase in total volume as a result of the IFISA. It’s clear that Real Estate lending stands to benefit the most.

In anticipation of the influx of retail investors expected by the onset of the IFISA, some P2P Real Estate lending platforms are even lowering their investment thresholds.

What is the IFISA?

At its most basic, the Innovative Finance ISA allows UK investors to lend money using P2P lending platforms to invest up to 100% of their £15,240 annual ISA allowance, and to receive any interest and capital gains tax-free. You can find out more here.

Institutional Investment in Real Estate Alternative Finance

Catching the scent of a good thing, institutional investors are also muscling in on the peer-to-peer real estate lending market, as they are across the alternative finance industry.

It is estimated, based on platform reporting, that in the UK in 2015, 1,031 institutional funders were at the bottom of financing loans and equity deals in alternative finance.

REAL ESTATE ALTERNATIVE FINANCE - QUOTE 10

45% of all alternative finance platforms reported institutional involvement in 2015. In 2014, this was 28%, and in 2013, just 11%.

For P2P business lending, in 2015 26% of total funding was attributable to institutional funding. In peer-to-peer Real Estate lending specifically, a total of 25% institutional funding was reported, with significant increase between the 3rd and 4th quarters of the year, in particular:

Q1 → 22%

Q2 → 22%

Q3 → 23%

Q4 → 31%

By contrast, however, in equity-based crowdfunding, 2015 saw just 8% of funding coming from institutions.

With institutional funding growing in the alternative finance market, as well as the influx of more high net worth investors, there is some discussion about whether the disruptive force of the alternative finance market is at risk of being stemmed.

Banking institutions have found themselves burdened with heavy regulatory compliance, cumbersome legacy systems and bureaucratic complexity. Since the debacle at the end of the last decade, the general populous has been hungry for new alternatives to the traditional financial system. Confidence has been lost, and – at the retail end of the investment spectrum at least – making one’s savings grow within the received systems has less potential for gains than what’s promised by alternative finance.

Alternative finance has become a key player in the development of a whole new generation of financial products. Along with a range of other FinTech solutions to saving, banking and investment, this revolutionary rumble has got the banks concerned.

It’s no wonder that, as such a disruptive movement grows, it finds itself on the precipice of being co-opted into the corporate world. But all the time that interest rates on savings accounts remain shockingly low, and first-time buyers view getting on the property ladder as likely as a winning Euromillions ticket, the prospect of a less suffocating alternative for growing money will continue to be thoroughly desirable.

And, focusing on Real Estate specifically, research conducted by Crowdstacker found that 44% of retail investors would like to increase their exposure to the UK property market, not only owning their own home, but also by investing through P2P lenders, like The House Crowd. Investor reluctance was found to centre around the time consuming nature and costs of property management, as well as affordability. The alternative finance model of crowdfunded property investment and P2P lending in Real Estate removes those factors from the equation.

2015 also saw the emergence of self-managed, platform-owned listed investment trusts, funds and vehicles: a sure sign that platforms are preparing to challenge the fund management space.

And as the alternative finance world continues to evolve, we are also seeing the emergence of a number of independent online aggregators, such as Informed Funding, FinPoint and ABF. These are rising up to provide additional channels and services for connecting business fundraisers to alternative finance platforms.

That being said, corporate interjection into the alternative finance space should not be considered a negative. It is this involvement that is allowing the industry to grow and evolve.

A number of P2P consumer lending platforms have struck high profile partnership deals with some big-name corporates.

REAL ESTATE ALTERNATIVE FINANCE - QUOTE 11 - THE HOUSE CROWD

Corporate partnerships have been witnessed between alternative finance platforms and large brands such as Virgin, Amazon, Uber and Sage. As NESTA puts it, these partnerships are “fusing the traditional corporate world with the disruptive models of alternative finance”.

It is these partnerships that will aid in increasing public awareness of the alternative finance sector, but not only this. Corporate partnerships will also attract high quality borrowers, reducing default rates on P2P loans, and also offers the potential for data gathering, which will enhance the industry’s credit scoring capabilities, and inform risk management.

The increasing involvement of high net worth investors, along with institutional funding and corporate partnerships is what is allowing alternative finance to push boundaries, blur definitions, and limit the dangers of orthodoxy: it is a catalyst for rapid evolution.

Conclusion

The extraordinary growth of the industry that we have witnessed over the last few years has begun to level out.

In 2015, the UK’s alternative finance industry facilitated investments, loans and donations totalling £3.2bn. In 2014, this figure was £1.74bn – a YoY growth rate of 83.91%, which is not to be sniffed at. But when you compare this to the 161% growth between 2013 and 2014, it looks positively small.

REAL ESTATE ALTERNATIVE FINANCE REPORT - QUOTE 12 - THE HOUSE CROWD

In 2014, 24 new alternative finance platforms began trading. This was down to 14 in 2015. Fewer new entrants are joining the market, whilst existing platforms continue to increase their total volumes at a steady rate.

Up until now, the industry appears to have been actively pushing its boundaries, both in its evolution, and in its rate of growth. Whilst the figures continue to be staggeringly impressive – with the market on course for a £5bn year in 2016 – plateauing figures are a good sign that the industry is maturing.

Alternative finance is coming of age with intelligence and dignity. It is listening to influential voices from big corporates, accepting helping hands where they are offered, and maintaining its grass roots persona. Most of all, however, it’s making money, not just for a few, but for a large body of investors all along the wealth spectrum. In Real Estate, it’s helping to regenerate run-down neighbourhoods, keeping a stagnant housing market moving, improving living standards across the board.

REAL ESTATE ALTERNATIVE FINANCE REPORT - QUOTE 13 - THE HOUSE CROWD

In short, alternative finance may have been a disruptive teenager, but it’s growing up to be a real force for good in the middle of a blighted financial landscape. The future of finance is looking promising.

 

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