This year in the UK a residential property crowdfunding platform propertypartner.co went live and I would like to understand it from economic point of view.

The idea is that a flat/house is purchased and within couple of weeks the necessary amount will be collected from individuals and companies, that can invest 50+ gbp. A special purpose vehicle limited company will be created and investors will get shares in it, according to the amount they contributed. Let's say a 200k GBP property will be assigned to a limited company with 1m shares and so one share costs 20pence on the primary market. The property will be rented out and rental income will be distributed between the shareholders, with yield roughly 3%.

I heard about Real Estate Investment Trusts (REIT) and it seems similar, but in this case you can trade shares in one particular property and have several properties in your portfolio.

Several weeks after the purchase has been finalised, shares can be traded on the secondary market - shareholders put N shares on sale for price P and buyers can purchase 1 or more shares (or not, if they are not satisfied with the price).

After a long introduction couple of questions: 1. Share prices are denominated in pence, so a 19.95 pence share can go up to the nearest pence, 20 (and 21), so the potential profit will be 0.25% or ~5% for 21p. I know about the effect of decimalization on the stock market increased volumes somewhat significantly. Would lowering the price increment always increase volumes?

  1. Buyers have no way to signal how many shares they want to buy at what price, they can only buy at offered prices or wait. Is there a name for this type of marketplaces with only offer listings? Are there any advantages compared to the usual exchanges with bid/ask listings?

  2. Every several months properties are reevaluated, currently property prices grow at about 10-20% per year in the UK. But interestingly shares of some properties on the secondary market cost already +20% compared to the last valuation, especially these with unusually high yield (3.5-3.8%). I understand like with fixed income securities, unusually high yield will drive up prices. Interesting that properties with similar yield and potential growth characteristics trade at somewhat different premiums. I presume such illiquid markets have lots of irrationalities?

  3. Let's imagine the whole residential rental market will be securitised in such way, would it increase/decrease chances of bubbles? Are there any interesting papers about it?

Thanks, my question is rather long and I will try to rephrase it clearer later..

  • 3
    $\begingroup$ You're asking a lot of different questions here, some of which have fairly long and complicated answers. It might be useful to ask one question at a time, and to try to ask each question in a general way, rather than one that is specific only to this market. $\endgroup$ – dismalscience Apr 25 '15 at 0:27

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