Monthly Archives: April 2014

Croydon private rented tower gets go ahead

Permission has been granted for an office conversion in Croydon that will create 420 new homes, of which 230 are destined for private sector rental. Work should start on site at the end of 2014, converting  Taberner House into a 32 storey residential tower full of rental flats.

The project is being driven by the Croydon Council Urban Regeneration Vehicle, which has signed a deal with private developer Essential Living to buy and lease out the rental flats in the tower. A separate transaction will see lower level blocks adjacent to the tower developed by Places for People, which will create 220 homes for flexible tenure sale.

Taberner House has been a landmark in the area for many years, and was formerly the council's own offices. 

Taberner House has been a landmark in the area for many years, and was formerly the council’s own offices. 

Jo Negrini, executive director of development and environment at Croydon Council welcomed the approval for the project. “This is a really exciting planning decision for Croydon and another high quality development for a prime site in our town centre – one that will provide much needed new housing with fantastic transportation links. This is another really important milestone for Croydon.”

Croydon is undergoing something of a makeover, with several of its tired 1960s office buildings undergoing transformation into residential use. A stand-off between rival developers over which retail scheme would proceed in the centre has also recently been settled, with Hammerson and Westfield now planning a major new shopping centre redevelopment.

CCURV has already made headway in the area, having started three previous redevelopment schemes. Founded in 2008, it has developed Bernard Weatherill House, the council’s new offices, which were completed in 2013; handled the Waddon leisure and housing project; and is working to redevelop the Lion Green car park site for foodstore and community use.

Birmingham council to launch its own PRS development project

Birmingham City Council is to start building homes for open market rent. A meeting of the council’s cabinet on Monday approved plans to set up a company to develop and rent out 90 flats on a council owned site in central Birmingham.

The project, which may well require external finance, is being taken forward with the commitment to spend up to £240,000 hiring in expertise to work up the development scheme, and to review likely returns for the council from building homes for open market rent. The work will “develop a full business case to establish a wholly owned company of the council to develop new homes for market rent”, according to papers. In order to proceed with development, the site in Birmingham’s St Vincent Street would be transferred to the new company at an open market value.

“We know that there’s a demand,” said councillor Tahir Ali at the cabinet meeting. He said the council’s intervention into the market could provide an impetus. “We hope that other developers will see this as a scheme which will bring them on board, to drive forward in terms of building homes that are much needed in the city.” Councillor Ali noted that one alternative, of selling the site to a private developer, would not necessarily deliver homes as quickly as it could then be banked, if prices were on the rise. “There’s a risk of that site not being developed for a number of years.”

In autumn 2013, the council approved its Housing Growth Plan, which foresees a need for 80,000 new homes in Birmingham by 2031. This, the plan acknowledges, will require an investment of around £12 billion by private and public sector stakeholders; the plan also notes that the private rented sector will have a growing role in making up the numbers.

“Over the last ten years, the Private Rented Sector has continued to expand doubling in size and now representing 15% of homes in the city,” noted the report to cabinet. “It provides an important route to housing for those households unable to access owner occupation due affordability or the unavailability of mortgage finance, but also recent research demonstrates that the majority of the households accommodated in the sector are higher earning young professionals for whom the flexibility of tenancy and the ability to move homes in pursuit of career opportunities are more attractive than owner occupation.”

Of that 80,000 figure, around 62% are expected to be provided by the private sector, for rent or sale. And while the council still notes its important role as a provider of subsidised rented homes, it also reckons it needs to demonstrate its position as a pump primer for the private sector: “There is an opportunity for the council to lead by example and act a developer of private rented sector homes, in locations where this form of tenure is most appropriate until the private sector’s expressions of interest become translated into investment in Birmingham.”

The council notes that it has several potential PRS development sites in its control, and that these suit a dense private sector rented project, rather than being built out at a lower density with affordable housing.

 

Taskforce calls on local authorities to build to rent

The Government’s Private Rented Sector Taskforce will be encouraging local authorities to invest in local built-to-rent schemes, as it moves into its second year of existence. Alongside a continued push to get major investing institutions to see the sector as somewhere they need to allocate funds long term, there will be further attempts to get housing associations more active in the private rented sector.

These initiatives have been outlined by Andrew Stanford, head of the taskforce, as key actions for year two of the group’s existence. “We want to work with councils to see how they can encourage or invest in build-to-rent schemes in their areas,” said Stanford in his end of year report, published recently in Property Week magazine. Despite the success of Help to Buy, which has encouraged greater building of new homes for first time buyers, “there is clear demand for high quality rented accommodation available on flexible terms”.

Stanford reflects on positive first year for PRS Taskforce

Stanford reflects on positive first year for PRS Taskforce

Housing associations have been slow to get involved in the private rented sector, with a few notable exceptions. Even those who are building for private rent often see it as only a minor adjunct to their main business of creating subsidised, affordable housing. Among those taking the leap is Genesis, which recently won the largest slug of money yet awarded from the Build to Rent fund, for around 500 new homes build for the private rented sector. “There is a lot of expertise in the social housing sector,” says Stanford, “and I want to work closely with landlords to see how they can use that to help meet the growing need of their communities for flexible, affordable private rented accommodation built to a high standard.” Stanford himself has recently joined the board of housing association Orbit Group – so expect them to commit to build more private rented homes soon.

Looking back on a successful first year for the task force, Stanford notes that the £1 billion Build to Rent scheme, effectively providing pump priming loans from the Government, has helped with schemes already under construction. A further 36 projects have been shortlisted for support, and will complete initial vetting in May 2015.

He also points out that planning guidance now encourages housebuilding for private rent. And initiatives such as the Urban Land Institute’s design guide, and a code of practice for the rental industry, are helping to raise professionalism and standards all round.

“The work of my task force is to encourage institutions to consider this growing market as a place to invest,” promises Stanford.

Dublin apartment block for sale for EUR40 million

Anyone looking to take a significant position in the Irish private rented sector will be taking a closer look at the Marker Residences, currently being offered for sale by the Dublin office of agent Savills.

An asking price of EUR40 million has been put on the block, containing 84 apartments on a site overlooking Dublin’s Grand Canal Docks. The block, which also includes a small commercial element of 898 sq metres, is effectively fully let and generates around EUR2.5 million a year in rental income.

The block is sure to be of interest to Canadian residential investor CAPREIT which, through its newly established Irish company IRES REIT, is already making significant inroads into the Irish market, as reported here.

Savills describe the block as “one of Dublin’s most prestigious residential developments” with the property offering “a rare opportunity to acquire a fully income producing trophy asset”. More details here.

 

 

Affordable housing policy – good from afar, far from good?

A recent United Nations report on UK housing conditions concluded that the country is facing a critical situation in terms of availability, affordability and access to adequate housing. Indeed in England, it is estimated that 250,000 new homes a year are needed to meet demand, while figures from the DCLG show that construction was started on just 122,590 new homes in 2013. Affordable housing is described in the report as ‘especially scarce’.

The Government’s official line is that it is seeking to rigorously address the need for more affordable housing as a major priority. However the consequences of its planning initiatives, far from delivering as much affordable housing as possible, seem to be largely undermining its provision. In this article, John Bosworth, a partner at Ashfords LLP,  examines why.

Community Infrastructure Levy (‘CIL’)

The introduction of the CIL charge has brought with it a possible blow to affordable housing in downgrading the importance of the Section 106 Agreement. Up to now these agreements have been used to secure both affordable housing and infrastructure contributions: in future, where an authority has adopted CIL, the section 106 agreement is most likely to deal with just affordable housing and other on site matters.

Local authorities must apply CIL to the funding of “infrastructure”, the definition of which expressly excludes affordable housing provision. Section 106 agreements in theory therefore should continue to operate alongside CIL, driving the delivery of more affordable homes. There is an obvious problem, however, in that if an authority’s CIL level is too high, the development risks becoming unviable – and affordable housing under a Section 106 Agreement will become extremely difficult to secure. With no flexibility to reduce the amount of CIL on these grounds, the result will invariably be a trade-off between CIL funded infrastructure and affordable housing, compromising provision of the latter.

John Bosworth of Ashfords - planning policy is failing affordable homes delivery

John Bosworth of Ashfords believes planning policy is failing affordable homes delivery

 

The problem is exacerbated by the National Planning Policy Guidance’s stance on viability. The NPPG provides that such considerations are “particularly relevant” for affordable housing contributions, which should not be sought without having regard to individual scheme viability. Where there are issues of viability, it is affordable housing that will take the hit.

National policy

As well as the NPPG’s unhelpful position on viability, there are other aspects of national planning policy which contradict the Government’s assertion that affordable housing is a major priority.

When negotiating planning obligations, the NPPG states that authorities should be “flexible” in their affordable housing requirements and have in place a clear policy that such obligations will consider specific site circumstances.

Another concern is the NPPF’s introduction of the concept of affordable rented housing, a form of tenure which allows tenants to be charged up to 80% of local market rent. Given the current strength of the private rental market, in many areas these rates risk rendering the “affordable” tag meaningless.

New and proposed legislation

The implementation of CIL is not the only recent legal development to seemingly undermine affordable housing provision. Firstly, new permitted development rights have been introduced over the last year allowing buildings previously used for office, retail and agriculture to be converted to residential dwellings. Shockingly, no affordability requirements accompany these new rights.

Secondly, last year, legislation introduced a fast track option for the affordable housing elements of a section 106 agreement to be renegotiated (and appealed) where viability issues have arisen following the completion of the agreement. This is already leading to existing commitments being relaxed on appeal. And in the 2013 Autumn Statement, a national ten unit minimum threshold was proposed for sites before affordable housing contributions can be sought, which will undoubtedly worsen the affordable homes shortage in rural areas.

The Government has pledged to deliver 170,000 new affordable homes by 2015. However, with numerous planning initiatives hampering such provision, serious questions should be raised as to whether this target will actually be met.

John Bosworth, partner, Ashfords LLP

Institutional investor demand for rental properties hots up across Europe

Investor appetite for a stake in European residential rental properties is hotting up, with the German market already looking too hot for some. As a result, interest is increasing in the Dutch market, where it appears the rental property market may now be turning positive once more. With increasing competition for residential rental portfolios, investors will be keeping a close eye on the UK market which will become increasingly attractive by comparison.

In Holland, Dutch company Domus is launching on the Netherlands stock market, in a share sale that will raise EUR250 million for the company and for its current backers. Domus owns around 44,000 rental homes in the Ostrava region of the Czech Republic.

Domus is owned by Dutch private equity firm BXR, which will retain a stake in the business. BXR is itself partly owned by a Czech investor, and is linked to Czech property company RPG Byty, which will be folded into Domus as part of the listing.

Meanwhile German housing group Gagfah has arranged a EUR176 million funding deal with HSH Nordbank, covering a portfolio including more than 4,400 residential properties in the Heidenheim area. Gagfah is one of Germany’s leading listed residential companies, with around 144,000 of its own rental apartments, and a further 35,000 managed for other owners, spread across the country.

German finance costs are low, allowing local investors access to funds with low fixed costs over the long term, one reason why shares in German REITs make an attractive holding for investors. Gagfah’s refinanced loan has a weighted average length of six years, so reducing it financing costs, compared to the existing finance that the new loan will replace.

And the strength of the German market has prompted one investor to look instead to Holland. BNP Paribas REIM Germany recently opted to purchase a portfolio of 265 apartments in Randstad for EUR40 million, where it perceives the residential rental market taking a turn for the better.

The company’s Reinhard Mattern told Investment Europe: “In Germany, our investors’ room for manoeuvre in acquiring properties with a satisfactory return is becoming ever more restricted due to continued high demand. At the same time, however, real estate investments are one of few investment opportunities that are also attractive at a time of low interest rates. In this environment, we have to identify and establish long-term alternatives.”

Notting Hill embraces private rental housing in porfolio mix

Housing associations need to embrace the private sector in order to help deliver more social housing. That’s the message from Kate Davies, chief executive of housing group Notting Hill.

While still a housing association dedicated to providing supported homes, Notting Hill has moved with the times and today almost one fifth of its portfolio is private rentals and shared ownership housing. In an interview with The Guardian, Davies says that building a more commercial attitude is essential. “I support social housing – there should be more of it. But if there is limited money available for that, what else are you going to do to produce more of it?”

Davies says that Notting Hill is still dedicated to its core activities, but that housing associations who baulk at change are living in the past. Subsidies from government are declining, and that means other options have to be explored, to help fund the provision of affordable homes. “If you can produce low-cost housing for people by doing commercial activity, do the commercial activity.”

Read more of the Kate Davies profile in the Guardian.

True or false? 7 key housing market facts unpicked

There’s plenty of opinion, and too few facts, when London’s housing market is discussed. Here, JLL head of residential research Adam Challis helps unravel some of the most frequent assertions:

1) There’s too few homes being built – TRUE
There are around 20,000 homes being built a year, against an established market requirement for around 42,000 a year. Simple economics applies: if there are too few to meet demand, so the price goes up.

2) There are too many foreign buyers – FALSE
London is an international melting pot, and has been for many years. Of the 33 London boroughs, JLL says 25 count than 30% of their residents as having been born outside the UK. In four boroughs, the count is over 50%. So there may be plenty of perceived foreign buyers, but many of them already live in the capital.

3) Foreign buyers are skewing the market – FALSE
Recent reports suggest just 6% of the market is accounted for by foreign buyers. That means UK buyers account for 94% of the action in the market.

4) Foreign buyers are deliberately leaving flats empty – FALSE
A survey of buyers by JLL shows that 85% are planning to rent out their flats; while the rest are either buying for a second home, or buying for children while they study locally. So that’s less than 10% (the second homes) likely to be left empty for a while.

5) Overseas buyers help revitalise the market – TRUE
Foreign buyers are more used to putting down a deposit before construction, which UK owner buyers can rarely do. With development finance from banks hard to come by in recent years, the deposits of foreign buyers have helped jump-start the house builders on several schemes.

6) The housing market helps the economy – TRUE
Housing is reckoned to represent around 3% of GDP, with the industry employing thousands of people. The Berkeley Group reckons each new home helps create 4.5 jobs.

7) Development gives back to communities – TRUE
Councils extract affordable housing contributions, the Community Infrastructure Levy, and Section 106 payments, as a condition of granting planning permission. These payments fund affordable housing construction, community and local authority projects.

Says Challis: “The only long-term solution to London’s housing affordability challenge is to find a closer balance between supply and demand. With population growth of around one million people expected over the next decade, the only solution is to seek strategies that weaken the boom/ bust market cycles that do so much to disadvantage aspirant Londoners.”

“This also means we should look hard to identify genuine solutions to expand supply, wherever they might lie.”

Grainger buys in London but eyes up the regions

Leading residential landlord and investor Grainger has indicated it will now look to the UK regions for future private rented sector investments – just as the company announced it has bought a £160 million residential portfolio in central London.

The latest deal has bought Grainger 61 properties in Kensington and Chelsea, the heartland of smart central London. The houses in the purchase are valued at less tahn their vacant possession value, as 45 are subject to regulated tenancies, while 13 are let on assured shorthold tenancies and 3 are empty.

“This is a rare and exciting opportunity,” said Grainger chairman Andrew Cunningham. “It is a very attractive portfolio in one of the most prestigious locations in London and it includes a high concentration of regulated tenancies, a sector in which Grainger has had a long and successful history of investing. Leveraging this experience and the skills within our unique operating platform to manage and enhance residential property, I am confident that we will generate significant value from the portfolio on behalf of our shareholders over time.”

The company has hinted that it may well sell individual properties as they become vacant, or look to redevelop where suitable, taking advantage of house price rises in London’s raging residential market. Grainger used existing finance facilities to purchase the portfolio, and still has more than £200 million of firepower to use in the market, should it wish.

And that firepower may well be deployed outside the London area, if a report by publication Inside Housing carries weight. They report that Grainger now sees better opportunities in the regions, “in particular in build-to-rent and private rented sector developments” as economic recovery takes hold. An unnamed Grainger source says competition is high in the capital, with a large volume of money chasing a small volume of deals in London.

Agents have recently reported that price rises in London mean investors can now get a better return on private rented property by purchasing in the regions, as previously reported by Resimarketnews here.

M&G invests in Holland housing as Dutch investors look to UK PRS market

Investor M&G has committed EUR110 million of mortgage finance to back the acquisition of a Dutch portfolio of 1,250 homes, including rental flats in Amsterdam. Yet the deal comes after the investment manager recently suggested investment activity was likely to be in the other direction, as Dutch residential investors eye up opportunities in the UK market.

The Dutch deal sees M&G providing 10 year funding for the portfolio of homes in Dutch cities, as well as a few commercial properties. The homes are located in housing apartment complexes in Amsterdam, Groningen, Heerenveen and Rotterdam. Unusually, the deal gives the borrower a combination of fixed rate and floating rate finance, a more flexible arrangement than that generally offered by Dutch banks.

“The Dutch market, both in the commercial as in the residential area, has had a difficult period and fundamental problems but, for investors such as M&G with good resources and client capital to deploy, there will always be relative value opportunities,” said M&G’s head of senior mortgages Paul Dittmann.

“We have been and still are a large lender to residential portfolios in the UK and Germany, and the asset class is well suited to our investor base. The Dutch market has its own particularities, including a high level of regulation in both the rental market and owner occupier market, but on the whole this was an appealing investment for us.”

The deal is a contrast to market comments from colleagues at M&G who last month suggested it is likely Dutch investors will shortly plough into the UK private rented sector market, where a “perfect storm” is inviting them to take an interest. “Shifting demographics, relatively low levels of construction and landlord-friendly UK regulations are trends that will continue to boost the UK rented sector for the foreseeable future,” said Stefan Cornelissen, head of institutional business development for Benelux and the Nordics at M&G Investments. “Such factors are luring Dutch and other international investors to the UK.”

For the Dutch, the UK market also contrasts with their own home situation, where renting is in decline, with the PRS sector representing 10% of all households, against 17% in the UK. “This suggests that in terms of the number of dwellings in the PRS, England alone is more than three times the size of the Netherlands,” said Alex Greaves, residential property fund manager at M&G.

The Dutch market has also seen good supply of new homes, with almost 10% added to the national stock of homes in a decade, moving ahead of household growth. In contrast, the UK continues to see a shortage of housing, largely due to the inability of politicians to ease the country’s planning system to meet demand.