Overseas investors have also been on the prowl. Aside from APG, Ivanhoe Cambridge, a real estate subsidiary of the Caisse de dépôt et placement du Québec, US based Apollo Capital Management, Swedish property group Akelius and Abu Dhabi Investment Authority have raised well over £1bn to the sector through UK partners over the past three years.
For now there are too many investors chasing too few deals and finding the right location is even more challenging. “The opportunity to buy large portfolios of existing standing stock are far and few between but it is also hard to get the numbers working for the new builds,” says Jacqui Daly, Savills’ director of residential research. “Our research shows that the value for rental property deals for large-scale investment rose from £1.6bn in 2012 to £2.5bn in 2013, but London can be difficult due to the high land values while many regional markets have not recovered since the credit crisis. You need cities where the rents are high enough to support the viability of rental schemes.
“As a result, I think institutions will build portfolios in a piecemeal fashion because it will be difficult to spend £500bn all in one go. It may be easier to start with much smaller sums and gradually build up the scale.”
Although there are obstacles to climb, institutions remain optimistic based on all the research pointing to a structural shift in the residential market. People are renting for longer periods as first-time buyers struggle to get on the housing ladder. Average earnings have not kept pace with house prices and there are more hurdles to overcome to obtain a mortgage. Research from Resolution Foundation shows that over half of under-35-year-old low- to middle- income households now live in rented accommodation, up from just over a quarter in 2003/4.
The government is also encouraging greater institutional involvement in the sector to try and address the imbalances. Several initiatives and reforms have been launched, the most recent being the increase in the size of the Build to Rent Fund from £200m to £1bn in the April 2013 Budget. The fund which provides equity or loan finance to developers building homes to the PRS, was launched in response to 2012’s Montague report, an independent review of the PRS.
In addition, a further £10bn of debt guarantees is being made available to provide cheap debt finance for the long-term holding of both social and market rental homes. The guarantees are available through two programmes: the Affordable Housing and Private Rented Sector Guaranteed Schemes. Each provides £3.5bn in debt guarantees while an additional £450m in government grants is available. There is also £3bn being held in reserve to support the schemes in the future.
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