The Lemon Fool

There was an article (I think in the Times) on social housing REITS. It seems almost too good to be true paying any where up to 10% dividend. However thinking about it this is a genuine long term investment with constant demand.

Examples included

https://www.trustnet.com/factsheets/o/j ... -z-acc-gbp - Threadneedle UK Social Bond Z Acc

Currently Civitas Social Housing has an IPO out
Fixed rate dividend of 3%1 p.a. on the C Shares
> C Shares will convert into Ordinary Shares
(within 12 months or once 90% of proceeds have been
invested/committed)
> These Ordinary Shares will then target a dividend of
5%1
p.a. paid quarterly, expected to increase broadly in
line with inflation
■ 100p issue price/98p opening NAV

as does Golden Lane Housing (fixed at 3.9%)
The value of the bond seems to be between £150 million and £350 million)

Any thoughts
Jon

Jon277 wrote:There was an article (I think in the Times) on social housing REITS. It seems almost too good to be true paying any where up to 10% dividend. However thinking about it this is a genuine long term investment with constant demand.
.......Any thoughts
Jon

My thought is, is this a genuine long term investment. Or can it be meddled with by a future administration either playing around with your capital or your return.

A 'up to' 10% return with an implicit guarantee tends to fall in to the too good to be true category. IMHO. Am I missing something ?

regards, dspp

dspp wrote: Am I missing something ?

Suppliers of social housing need finance to get their process moving. They have to pay for land and to build the housing. Formerly it was local authorities who had the advantage of being supported by central government and being able to levy taxes on their local population. If it's now to be provided by housing associations where and how do they raise finance?

What is the best way to raise such finance? A REIT is an approach which being equity has the feature of sharing the risks with the providers of finance.

Alaric wrote:

dspp wrote: Am I missing something ?

Suppliers of social housing need finance to get their process moving. They have to pay for land and to build the housing. Formerly it was local authorities who had the advantage of being supported by central government and being able to levy taxes on their local population. If it's now to be provided by housing associations where and how do they raise finance?

What is the best way to raise such finance? A REIT is an approach which being equity has the feature of sharing the risks with the providers of finance.

I fully agree with what you say. My concern is the level of political risk (esp in UK) associated with this market. This could be characterised as yet another rip-off Private Sector Finance Initiative ..... At any time over the many years to come whilst the capital is still at risk. Perhaps I ought not to have this concern, but I do.

regards, dspp

dspp wrote: My concern is the level of political risk (esp in UK) associated with this market.

It's quite obviously making profits at the expense of the less well off and therefore politically vulnerable. A financing alternative is to use the magic money tree of state borrowing. Are future taxpayers willing to take the risks of higher interest rates if borrowing fixed or higher inflation if borrowing indexed? For that matter is there an infinite capacity of lenders willing to accept next to nothing by way of returns because of a state guarantee?

The expected dividend yield guidance published by these reits is based on the IPO price and is furthermore dependent on what seems to me a high level of gearing, once the gearing is stripped out they do not seem to be offering much but then I suppose they do not think that they need to?

I remember reading an article on the inefficiency of social housing (the way they're run, not the socio-political aspect).

I googled and found https://www.spectator.co.uk/2015/07/hou ... ld-houses/ which looks familiar.

I personally wouldn't invest in such a scheme, but would look to house builders instead, or a market-rate REIT, since I just don't believe the political risks, combined with the points made in the linked article, would expel any case for a long-term investment.