UK’s Build-to-Rent scheme attracts investors

LONDON: Investors are shifting their focus to Build-to-Rent scheme properties, regional investment stock and the forward purchase of stock direct from developers, due to the lack of existing investment stock in London, according to CB Richard Ellis (CBRE)’s first quarter in financial year 2014 (1QFY14) UK Residential Investment report.

“A significant proportion of the established London-specific residential investors are now appraising Build-to-Rent [schemes] in cities such as Manchester, Birmingham, Bristol, Leeds, and Milton Keynes,” stated the report.

The first Build-to-Rent scheme was proposed by the British government in 2012 as an effort to increase the number of homes in the country amid high property prices and mortgage constraints on owner occupation.

Due to the high demand for private rented accommodation, Housing Minister Kris Hopkins announced a shortlist of 36 developments in line for the £1 billion (RM5.4 billion) Build-to-Rent Round 2 fund. Around 80% of the projects are listed in London.

“A number of investors are moving up the risk curve and seeking to build their own rental product. The key attraction is the scale it allows them to access, and the potential returns on offer, which are significantly in excess of those available for standing investments or forward purchase opportunities,” said the report.

These new private rental providers include Get Living London, Essential Living and Fizzy Living, which intend to build 1,000, 2,000 and 5,000 new units respectively in London and in South East England.

Fizzy Living is a subsidiary of Thames Valley Housing, which owns or manages 14,000 homes in London and south-east England. Get Living London is a new residential owner and rental management company established by Qatari Diar Real Estate Development Company and Delancey, and Essential Living is a new platform created through a partnership between the owners of Essential Land LLP and London-based M3 Capital Partners.

“Forward purchase opportunities are becoming more widely available as house building increases and developers seek to de-risk schemes through the sale of parts or whole of future phases of schemes to investors, without having to offer significant discounts.”

The report said the opportunity for the investor lies in the scale of investment on offer, healthy net yields and the option of development risk.

CBRE predicts continued strengthening in both pricing and demand in the short to medium term for standing residential investment stock.

“The limited availability has created a supply/demand imbalance. With the equity already committed to the market, and with the newer investors close to committing funds to the market, we envisage an exacerbation of this imbalance, and hence further pressure on pricing in key rental locations,” said the report.

This article first appeared in The Edge Financial Daily, on May 16, 2014.

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