A residential property investment platform has launched targeting average net returns of 15 per cent per annum.
Homegrown aims to give retail investors access to residential development projects – an area that has previously been restricted to high net-worth and institutional investors
The FCA-authorised platform has a minimum investment level of £500 per project and will only invest in pre-vetted and fully underwritten residential developments that have already received planning permission and bank finance.
Its focus will be on urban areas where there is high demand, predominantly in London and the South East.
Investors can pick from a number of shortlisted projects and follow the performance of their investment online from the first brick laid through to completion.
It is hoped the platform will provide investors with an alternative to the buy-to-let sector, which has been hit by a wave of government tax changes, and help to raise funds for medium-sized developers.
A test phase involving five developments has been carried out in areas such as Hackney, the Docklands, Norbury and Kilburn, with a gross development value of £140m.
All developments are held in a separate special purpose vehicle and typically complete after a period of around two years, at which point profits are distributed to shareholders.
Homegrown charges a one-off deal origination fee of 5 per cent when funds have successfully been raised, and 15 per cent of the profits achieved, aligning its interests with those of investors.
The platform’s chief executive Anthony Rushworth said: “Homegrown is about giving everyday investors access to the often-superior development returns that are typically only available to professionals and institutions. It also helps them to do their bit in solving the housing crisis by providing property developers with much needed equity finance.
“We also like to think we’re filling a major hole for many UK investors left by the buy-to-let exodus. With the raft of tax changes imposed on it, buy-to-let is no longer the investment it was and investors are increasingly looking for alternatives. Homegrown, by contrast, does away with the reliance on rental yields and long term property market growth.”
Alex Reynolds, IFA at London-based Advies Private Clients, said most investors in property development would be looking at 15 to 20 per cent profit margins.
He added: “Clearly, there are risks with development. If the property market falls, it could be worth less.
“There have been issues in the north and the midlands whereby developments can go wrong and costs can be much higher than anticipated – people thought the properties would sell for 100,000 and they could only sell for 75,000 or 80,000.
“It is a small investment as a minimum, but if you have 15 per cent of that, it is not a lot of money. I would have to look much more closely before advising someone on that. You have got to be careful in a more difficult market, that is for sure.”