Housing developer Bovis Homes has won two contracts to build new homes for the private rented sector. Between them, the two deals will see the company deliver 510 homes across sites in the UK, through 2014 and 2015.
It also means Bovis can sell off some older plots in its land bank, some of which have already been written down in its accounts. Without this deal, there is a clear indication that the private residential sales market is not lively enough or profitable enough to have had the company building out these plots for sale, within the next couple of years.
One deal with Mill Group involves 190 homes, of which 110 will be houses, to be delivered on sites in Horsham, Bristol, Brockworth, Southampton, Cambridge and Hemel Hempstead. The £45 million joint venture has Mill as the majority owner and is supported by £8.77 million funding from the government Build to Rent scheme, and senior debt from RBS. Bovis will put £1 million in, and advance £4 million as a loan. The homes will be completed over the next 18 months, and will be rented and managed by Investors in Homes Management, a Mill Group subsidiary.
“This new joint venture forms a key part of our strategy to build a significant PRS portfolio and demonstrate our commitment to structure, source, finance and invest in the right opportunities,” said Mill Group chief executive David Toplas. “There is a significant, well-recognised shortage of homes and an ever-growing need for good quality, affordable rental accommodation, and this deal will help tackle that. We are delighted to play our part to encourage greater institutional investor participation, ultimately helping to spur an increase in supply of private rental homes.”
For Bovis, the deal puts some of its existing land bank into action, bringing forward mothballed sites for construction, and delivering it better returns than if the sites continue to be held for future development and sale individually. Says a company statement: “These homes will be delivered over and above the group’s prevailing private sales, accelerating the development on each of the sites included without sales risk, with an average housing profit margin which is not expected to dilute the group’s anticipated operating margin in 2014 and 2015.” The units will be counted in Bovis Homes’ reported completion figures.
Details of the second deal, involving 320 homes, are not immediately clear. However, for Bovis, this will enable it to shift new homes on sites mainly in the Midlands and north. The company says the deal will enable it to “accelerate trading” through several older sites, “some of which are written down”.
“We are delighted to have agreed these two private rental sector deals which provide the opportunity to deliver over 500 additional new homes during 2014 and 2015,” said David Ritchie, chief executive of Bovis Homes. “Through achieving ths, Bovis Homes is accelerating delivery across a number of existing housing sites and enhancing shareholder returns.”