The Lloyds share price has been in a relatively tight range this week as investors reflect on the bank’s decision to launch a real estate business. The LLOY stock ended Thursday at 44.25p, which was slightly above this week’s low of 42.86p.
Analysts on Lloyds property ambitions
Last week, we wrote that Lloyds Banking Group was venturing into the real estate industry. Indeed, its ambitions are to become the biggest landlord in the UK, through its Citra brand. The company has already started making these moves considering that it owns about 45 flats in Peterborough. Its end goal is to own about 50,000 rent-to-own buildings.
The reasons behind this is relatively easy to understand. Lloyds makes most of its money from interest. Now, with interest rates being a record low, the profit margin has shrunk. As such, the bank hopes that entering the property market will help it offset losses in the property market.
This problem is not unique to Lloyds. Other banks in developed countries like the US and Germany are coming up with more products to diversify their earnings. For example, Santander has launched a money transfer company known as PagoFx while Morgan Stanley recently acquired Eaton Vance and eTrade.
At the same time, Lloyds is facing significant competitive challenges from neobanks like Revolut and Monzo. On Thursday, it was reported that NuBank, a Brazilian company, will go public in a deal valuing it at more than $50 billion.
In a note, a Financial Times analyst said:
“Sure, Lloyds knows housing. But not tenant management, which is where the reputational pitfalls lie. And the assumption by some that the end-game here is financing onward sales looks misplaced: the whole point (usually) is building a diversified portfolio to hold.”
In another opinion, a Telegraph analyst said:
“First, there might be a lot of hype around easy profits made by landlords, but on closer examination it turns out the yields are mostly pitiful. Across the UK as a whole, the average rental yield is only 3.6pc.”
Lloyds share price analysis
The Lloyds share price has reacted mildly to the real estate business launch. The stock is still held up in the same range where it has been in the past few weeks. In this range, it has struggled moving above the resistance at 50p and below the support at 42.8p. A closer look shows that it has formed a small double-bottom pattern whose neckline is at 47.40p.
Therefore, the shares will likely rebound in the coming weeks. For this to happen, it will need to stay above the support at 42.80p and then move above 47.80p.