As with all types of investment, there are several different types and levels of risk associated with property investing. At Pionr we take these very seriously and we are keen that our clients should understand these risks too, so that they can make investment decisions that best reflect their personal risk appetite, as well as allowing them to reduce risk by diversifying their portfolio across investments which together reduce their exposure to one particular type of risk. By doing this our clients are able to reduce their risk, while increasing their ability to reach their financial and investment objectives.
For example, if you have two property investments in a single geographical region, and that region experiences a property market downturn, both of your investments may fall in value, whereas if you had your investments in two different regions, then while your investment in that region where the market was falling might suffer, because you had diversified geographically, your second investment would be subject to different market conditions and might be increasing in value. At the end of the day, it’s the good old, “don’t put all your eggs in one basket” approach. So risks are not something to be terrified by, but to understand, and guard against.
At all times though, it must be remembered that The value of Pionr investments can go down as well as up, and historic performance is not a guide to future performance. A fall in the value of your investment may be due to a number of factors, such as a fall in the underlying value of the property or a problem with the property that will need to be funded from future rental income.
We therefore encourage you to diversify your investments across various properties and property types to safeguard against any issues such as tenants failing to pay their rent or a problem specific to that property that impacts its value.
The value of property can go up as well as down with economic cycles, and property that you invest in via the Pionr platform is no different. There are multiple sources of property market risk, including recessions, political instability, changes in interest rates, natural disasters and terrorist attacks, amongst many other factors over which alas, we have little say.
Unlike our competitors, Pionr allows you the opportunity to diversify your property investment portfolio across different geographies and property market sectors (commercial, residential, hospitality etc), which can help to reduce your overall exposure to property market risk. It should be remembered however, that while this can reduce your exposure to property market risk, it does not eliminate it.
Pionr does provide gross rental income estimates and estimates of projected returns from investments via the platform, based on information provided by third parties, but these are subject to many external factors and cannot be guaranteed. There may be circumstances where rental income from yielding assets is reduced or temporarily stops due to factors outside of our control. Clearly, the rigorous due diligence process for investment opportunities offered via the platform helps to mitigate this risk however, it can not be eliminated, and could affect the value of your investment.
Property markets are often perceived as a target for criminals to attempt to launder money or commit other financial crimes. At Pionr we use the latest technology to verify the identity of our clients in order to ensure as far as possible that we know who each of our clients is and the source of their funds.
Any user of the Pionr platform who raises doubts about their source of funds or their background is subject to so-called “enhanced due diligence”, whereby we will request additional documentation and information in order to make sure as far as we can that we are reducing the risk of the Pionr platform being used to perpetrate financial crimes. We have a dedicated Money-Laundering Reporting Officer to whom any suspicions about clients, partners or individual transactions are reported, and these are always dealt with immediately and robustly.
As we all know, when you undertake any large project, there are always internal and external factors that will affect its progress. This is very much the case with property development and construction. Some of the risks involved in construction that are outside of our control that can affect the efficiency and success of construction projects are the cost of materials and labour, changes in local and regional planning and environmental regulations, weather or environmental issues, or problems within the companies of 3rd parties involved in the development process, such as staff shortages or financial issues affecting their ability to perform the work.
Naturally, Pionr and our partners always endeavour to reduce these risks as far as possible by only working with reputable 3rd parties, and always doing our very best to understand potential risks and do whatever we can to reduce them and guard against them however, it is important to understand that it is impossible to eliminate these risks entirely
Direct real estate investments (those not made into a packaged retail investment product such as a REIT - Real Estate Investment Trust), while they offer excellent historic risk-adjusted returns, are considered to be alternative investments with relatively low liquidity. Liquidity risk is therefore the risk that the holder of a real estate investment may not be able to sell his or her investment quickly should they want to. This can be especially true when markets are experiencing downturns, and can lead to investors having trouble selling investments in time to avoid incurring losses. Packaged products on publicly traded exchanges on the other hand, while they provide greater liquidity and the ability to exit positions relatively rapidly, carry a significant liquidity premium, meaning that investors effectively pay extra in order to reduce their liquidity risk. As with all risks, liquidity risk should be considered carefully when investing via Pionr, in order to ensure that it is understood and that the level of risk taken on is within the parameters of a client’s own personal risk tolerance and appetite.
Foreign exchange risk describes the risk that an investment’s value may change due to fluctuations in the relative values of two different currencies. It is also known as currency risk, FX risk and exchange-rate risk.
As Pionr offers its clients the opportunity to invest in properties internationally it is possible that you may invest in an opportunity denominated in a currency other than that of your country of residence. If that is the case and the exchange rate moves in your favour between the moment when you invest and when you exit your investment, it can have a significant positive effect on your returns. However, conversely, if the exchange rate moves against you, this can reduce your investment return or lead to losses.
Foreign exchange risk is an unavoidable risk of foreign investing, but it can be mitigated considerably through hedging techniques. To eliminate foreign exchange risk, an investor would have to avoid investing in overseas assets altogether, but this may not be the best alternative from the perspective of portfolio diversification since historic evidence suggests that foreign investing improves portfolio return while reducing risk. Exchange rate risk can be reduced or even eliminated by hedging, and this is something that professional foreign exchange brokers can advise upon. As a rule-of-thumb one should leave exchange rate risk with regard to your foreign investments unhedged when your local currency is depreciating against the foreign-investment currency, but hedge this risk when your local currency is appreciating against the foreign-investment currency.
Shortfall risk is the possibility that you may not reach the investment target that you initially set out to achieve. Previous performance does not guarantee future returns, so you may fall short of your original plans.
Shortfall risk can be partially mitigated by investing over the longer term, as a ‘bad year’ will have less of an impact on the longer investment. Potential shortfall risks can also be combated by diversifying a portfolio, as this decreases the systemic risk. However, market risk will still remain.
A benefit of investing through a marketplace like Pionr is that investors never have to deal with our partner organisations (property developers and other project sponsors) directly. However, as with any company, there is always a risk, however small, that the company may lack the financial resources required to keep the business running or may be forced to discontinue its activities for other reasons outside of its control.
In the unlikely event of the failure of the Pionr platform, clients need not be concerned about the safety of their investments, which are all held separately from the assets and liabilities of Pionr, and were any such scenario to come to pass, ongoing administration of Pionr investments would be passed on to a 3rd party according to our internal business continuity protocols.
Capital at risk. The value of investments can rise and fall. Projections are not a reliable indicator of future performance. See Key risks before investing.