Property Bonds Explained

For experienced investors, alternative investment products such as property bonds are becoming more popular, thanks to their higher target returns than more traditional investment routes.

It's important than investors carry out thorough due diligence when considering investing into property bonds, making sure you fully understand the risks and benefits.

What is a property bond?

Property bonds, also known as property investment bonds, are a way for property companies and property developers to raise money from investors in the form of a loan. For experienced investors, property bonds are an alternative investment product that has the potential to provide attractive returns uncorrelated to traditional equity and bond markets.

How do property bonds work?

Property bonds are corporate bonds (also known as loan notes) issued to investors by property companies or developers.

Bonds are usually issued for a fixed term - generally 2 to 5 years - with a target fixed rate return paid to the investor quarterly, annually or at maturity. 

Investors receive a bond certificate and usually benefit from security over the underlying asset by way of a first or second ranking legal charge.

Are property bonds safe?

The fact that loans are generally secured offers an element of safety. However, property bonds are an investment product, and as with all investments, your capital is at risk and the returns on offer should always be considered target returns rather than guaranteed. Bonds of this kind are usually unlisted and not covered by the Financial Services Compensation Scheme (FSCS).

What are the benefits and risks of property bonds?

Property bonds have a range of benefits and risk considerations that must be carefully assessed when deciding whether they are the right investment choice for you. As always, you should keep in mind that property bonds are an investment product, meaning your capital is at risk and returns are not guaranteed.

Should property bonds form part of my portfolio?

If you are an experienced (sophisticated, high-net-worth or professional) investor looking for an investment that has the potential to offer higher returns than more mainstream products, it’s worth considering the addition of property bonds to your portfolio.