Property Bridges founder David Jelly talks to Marc Shoffman about the Irish peer-to-peer lending market, the housing crisis and Brexit.
Like its UK Neighbour, Ireland has struggled for years with a housing shortage. However, the formation of a coalition government in June, following a period of no government since February’s general election, has resulted in new impetus to get building. Dublin-based peer-to-peer lender Property Bridges is ready to unlock the lack of funding for developers who suffer from a small choice of mainstream and alternative lenders to support their projects.
The platform’s founder David Jelly (pictured) explains how the lender is set to benefit from government commitments to support affordable housing as well as the opportunities presented by its upcoming position as the only English-speaking country in the EU, once the Brexit transition period ends.
Marc Shoffman: What is the scale of the housing challenge in Ireland?
David Jelly: There is massive demand for social or affordable types of housing in Ireland. It is estimated that Ireland needs 35,000 units per year. The country built 21,000 last year and 15,000 so far this year. Of the 15,000, 50 per cent will be bought by the government for social housing. That means very few units are actually going for sale on the open market.
There is not enough supply to keep up with demand.
MS: How does the Irish P2P property market differ from the UK?
DJ: The legal framework in Ireland is very similar, as effectively the Irish legal system was built from the British one. If we compare ourselves to the likes of CrowdProperty or Kuflink, our projects are more development focused than bridging.
There is more of a gap in the market for development finance in Ireland and there is a lot less competition across both the mainstream lenders and P2P here. We have a strong focus on helping developers fund social housing that the government has pledged to buy, so there is no exit risk. The Irish government doesn’t have the ability to build.
What it does instead, is buy the completed properties from private developers. We fund a lot of projects like that. A lot of these houses are bought before they are even started so there is only development risk. That is a compelling opportunity. British investors can fund the loans on our platforms.
We also have lots of interest from investors based in the Middle East. The only friction point is that all our investments are in euros so they have to think about the foreign exchange issues.
MS: How were you affected by the lack of government in Ireland?
DJ: There were a number of months of negotiations to get the new coalition government in place. This will be forever known as the election that was dictated by housing. There is a massive housing crisis in Ireland. Some of the main parties’ lost ground as they haven’t been doing enough.
There was a shift toward the left and there is now a huge amount of pressure on the new government to deliver affordable housing. That is why the government has pledged 50,000 homes during its first term in office.
MS: What are your targets for 2020/2021?
DJ: A lot of our growth has been through retail P2P lending and a couple of institutional investors. We are looking to scale the amount of lending we are doing and plan to lend about £40m next year with a strong focus on social housing.
MS: How will Brexit impact you?
DJ: Brexit will be a challenge, but it is unclear at the moment how badly it will affect us. On the plus side, Ireland has definitely seen a number of UK firms relocating to Dublin for their head office. We will be the only English-speaking country in the EU following Brexit and a lot of US firms will want to headquarter in Ireland as a gateway to the European market.
We focus on residential property but this would have a positive effect on the commercial property space. It is hard to say if European workers who went to the UK would come to Ireland instead. If you look at the Irish market during the property bubble when everything crashed in 2007, all the eastern European immigrants went home. They don’t seem to be coming back in great numbers to work in the construction industry.
There has been a lost decade of skills in the Irish construction market and a lack of young people coming into the industry. If you are located in the EU and looking to move to an English-speaking country, you would probably be more inclined to move to Ireland as it looks like the UK will become more restrictive. Ireland would be the first choice.
MS: How have you navigated the coronavirus crunch?
DJ: Building sites were shut down for around seven weeks so projects have been delayed. None are in danger of going into default but their loan terms have been extended. We have managed that. There haven’t been payment breaks but we have given developers flexibility so there is no penalty for going over term.
Our maximum loan-to-value has been reduced from 70 per cent to 60 per cent during the pandemic and we paused new lending in March and April to see where the market was going. We started lending again in May but have been more cautious. Despite the uncertainty, May and June have actually been our biggest months of lending since we launched.
MS: How are investors reacting?
DJ: We have never seen as many lenders sign up as we have over the past couple of months. There has been increased appetite as investors see it as low risk and it is a way to diversify from the stock market. People have had a little bit more time at home to spend on managing their finances. We have had a wage subsidy scheme in Ireland so a lot of people will still have been earning a wage but not spending, so will have more disposable income.
MS: Would you like to see P2P regulation introduced in Ireland?
DJ: The Irish P2P market is not currently regulated. When we launched in 2018 and were drafting our terms and conditions, all our research and discussions with solicitors pointed to EU-wide regulation coming in 18 months.
As I sit here today, those solicitors and experts will probably still say it will come in 18 months. It will come in eventually but the EU has had bigger issues such as Brexit and coronavirus to deal with. As an investor, I would want to invest in a market that was regulated. We are set up in line with UK best practice – we follow anti-money laundering guidelines and don’t hold client cash.
The Financial Conduct Authority in the UK has taken a real lead on this but there have still been collapses such as Lendy. There are not a huge number of P2P lenders in Ireland, but those that are around have good reputations.