What Is A Property Bond and How Can Investors Benefit?
Property bonds are a way for housebuilders to raise money to fund their developments. It’s essentially a (legally binding) receipt for buying a stake in their projects and a good way to invest in property if you don’t have the vast sums needed for a traditional investment such as a buy-to-let.
Bonds are also a boon for hands-off investors who simply don’t have the time (or inclination) to manage a complicated portfolio of stocks and shares – here’s how they work and the benefits you can expect.
How do property bonds work?
Put simply, housebuilders issue bonds in exchange for financial investment in their projects.
In most cases, you’ll be expected to make a minimum investment for a fixed term – typically between three and five years. Interest is paid on a regular basis, which could be monthly, quarterly, annually, or at the end of the term.
At the end of the fixed term, you’ll get your money back along with any interest due if this is the option you’ve chosen.
Generally speaking, the longer the term and the more infrequent the interest payment, the higher you can expect interest levels to be. For example, our 36-month Fixed Rate bond provides a 7.5% return with monthly interest payments, while our five-year Growth Bond offers compound interest paid annually at 10%.
What is my investment secured against?
Property bonds are secured by legal charges which ensure your investment is protected. Security is provided by the housebuilders’ assets as well as the developments the money is being used for.
As an established housebuilder with more than two decades of property building experience, Acorn bondholders can expect their investments to be monitored with robust scrutiny.
Quarterly reports, updates on-site progress and meticulously tracked accounting processes, ensure your investment is used in line with business plans. Your investment is also safeguarded by our ability to cover liabilities through our parent company which boasts a total group fair value of £60 million.
Why don’t housebuilders simply borrow from a bank?
Housebuilders do use traditional funding routes like banks but more often than not, this will only cover around 50% – 65% of a project’s costs, leaving a considerable gap to fill.
Property bonds don’t just help plug that gap, they demonstrate an innovative and resourceful method of financing. Corporate bonds also give housebuilders the option to expand and carry out more ambitious designs with the potential for greater returns on investment.
With all of this in mind, property bonds don’t just represent an opportunity for investors, they can provide housebuilders with the freedom to create and nurture projects that are bespoke to local communities. This sustainable, inclusive approach is one which we’re passionate to promote and our ‘Different by Design’ ethos is the backbone of every build we construct, resulting in the regeneration of disused buildings and vacant land in some of the UK’s most desirable areas – turning them into award winning homes and retail space.
As an investor, what’s in it for me?
Not only can property bonds diversify your existing portfolio of investments, they can reduce overall volatility thanks to the UK being one of the most buoyant property markets in the world. Other benefits to investors include:
• Asset backed security – investments are typically secured by tangible assets that provide a high level of financial protection.
• Hands off and hassle free – bonds are ideal for investors who don’t have the time to manage a complex portfolio and are also a way to invest in the property market without the stress or expense of being a landlord.
• Fixed interest – providing stable and predictable levels of interest.
• Higher returns – property bonds often provide higher than average returns compared to other investments.
• Fewer barriers to entry – while a minimum stake is required, the amount is often significantly lower than investing in property in the traditional way.
And the disadvantages?
Secured, asset backed property bonds offer more peace of mind than many other investment opportunities but that’s not to say they’re immune from risk although potential hazards are mitigated by precautions such as legal charges. Plus, it’s also worth remembering that like most fixed-term investments, property bonds are illiquid.
In addition, it’s important to note that Acorn’s property bonds are not covered by the Financial Services Compensation Scheme (FSCS).
Who invests in property bonds?
Property bonds are open to both small and large scale investors who are able to make the minimum investment. Acorn investors must also fall into one of three categories set out in section 4.7.9 of the Financial Conduct Authority’s Conduct of Business Sourcebook (COBS):
• Certified high net worth investors
• Certified sophisticated investors
• Self-certified sophisticated investors
Is a property bond right for me?
If you’re looking for an asset secured, hands-off approach to property investment with the added benefit of relatively high returns, property bonds are a solid option. Particularly if you’re able to commit to a longer-term investment, generating even better returns.
Ultimately, investment choices come down to your own circumstances and you should always seek professional advice before making a financial commitment.
Rejuvenation through investment
With nearly 25 years of experience and a proven track record of developing high spec, award winning homes with robust management processes, we are one of the UK’s leading independent housebuilders.
Our sustainable approach to design and select partnerships have earned us a reputation for excellence and we’re proud to be the recommended development partner for numerous national and regional agents, surveyors and landowners.
Bonds issued help us continue the regeneration of derelict sites in some of the UK’s most prosperous areas where the demand for quality, bespoke homes are in demand.
For more information about our bonds and how they can inject resilience into your portfolio through diversification, contact our expert team to explore your options in more detail.