Monthly Archives: January 2015

Grainger and APG spend £33m on PRS apartments

GRIP Unit Trust, an investment fund backed by Grainger and APG, has bought a new build to rent development for £33.25m.

The deal is the third collaboration between Grainger and Bouygues in the private rented sector, helping to build a pipeline of long term rental apartments for the listed landlord.

The project, which has yet to start construction, is being built by Bouygues Development in Canning Town, east London. It will deliver 134 one and two bedroom apartments in a 16 storey tower due for completion in summer 2017.

“This transaction builds on an established partnership between Bouygues Development and Grainger and is further evidence of our commitment to the UK private rented sector,” said Tracy Hartley, Grainger’s GRIP fund manager. “We now look forward to working alongside Bouygues and the London Borough of Newham to deliver this exciting new long-term development.”

“The demand for high-quality rented homes far outweighs supply, and PRS represents a long-term rental income and a stable yield for our investors. In line with our strategy, and with the financial support of Grainger and APG, GRIP will continue to explore further investment opportunities including build-to-rent, enabling us to offer the growing number of renters top-quality and professionally managed housing that puts the tenant first.”

Nicolas Guerin, Managing Director of Bouygues Development, added: “We are firm believers in the build-to-rent sector and the PRS tower at Hallsville Quarter underlines our ongoing commitment to deliver purpose-built, professionally-managed, and institutional-quality homes for communities in London.”

“Our strong partnership with Grainger brings together expertise in development, design, construction, property and asset management to create a formidable team. We will not only meet the aspirations of Londoners looking for a better answer to their rental needs, but also continue to work alongside our partners at the London Borough of Newham to drive the economic growth of this important new focal point for the local community of Canning Town.”

Grainger has already committed to a project in London Road, Barking, which is currently under construction; and a development at Pontoon Dock, in association with the London Pension Funds Authority.


Internos aiming to create £2bn private rented housing fund

Internos Global Investors is teaming up with Catalyst For Homes to find ways to attract more institutional money into the private rented sector

The fund manager is already working with C4H on a major investment project, with the target of creating a fund with up to £2 billion in final value. It aims to buy into a mix of private rented and social housing across around 15 sites in the greater London area.

The pair are sizing up sites ahead of construction, aiming to select those most appropriate for institutional investment in long term private rented sector housing. They have set an initial 30 year timeline for the projects, with the aim of satisfying investors who not only look at property, but also hoping to draw in infrastructure and fixed income investors.

“According to Investment Property Forum seminal research in 2014, the UK private rented sector is worth around £837 billion, of which only £18 billion – 2% – is currently in the hands of institutional investors, the vast majority being held by private amateur landlords,” said Andrew Taylor, head of residential investment at Internos. “This compares to the UK commercial property market where more than 56% of the £647 billion estimated value is owned and professionally managed by institutions.”

“This disparity provides a significant opportunity to grow institutional investment with professional management in this previously overlooked market. Couple this with a worrying outlook for global equity and fixed income returns and the UK residential market provides an attractive proposition for risk-averse / return hungry investors.”

Catalyst For Homes was established in 2010 as a community interest vehicle, with a blue chip board that aims to change the way homes in the UK are held by investors. The board includes Clive Bird, formerly of Taylor Woodrow and Berkeley Group, and Adam Sampson, former CEO of housing charity Shelter.

Adam Sampson, executive chair of C4H, added: “The returns from residential investment over the past decade have significantly outperformed comparable markets.  The alliance with Internos provides an opportunity for increased access to this market for investors at the same time as addressing the desperate shortage of affordable housing which affects both individuals and the economic health of the nation.”

Croydon key to Criterion PRS growth in 2015

Developer and property investor Criterion Capital will deliver more than 1,500 apartments into the private rented sector around London and the south east, during 2015. And more than 580 of the new units will be in Croydon.

The company has recently signed construction contracts to begin work on a number of sites, principally converting redundant office buildings into flats for rent. It has projects live in Basildon, Colliers Wood, Croydon and Sutton. All of the completed homes will be offered for rent under Criterion’s Miflats brand, which promises to provide additional services and amenities for tenants including car pooling, cleaning, a concierge, fitness facilities and self storage.

More than a third of the new flats will be delivered in Croydon, where three separate projects are under way. Delta Point, formerly an office block occupied by BT, will convert to provide 404 apartments. Nearby Canterbury House and Bedford Park will produce a further 180 apartments. A £48m trio of design and build contracts has been agreed with contractor Longcross to carry out the conversions.  The design and specification of the flats is tailored specifically from the outset for rent, meaning a distinctly different look to apartments being built locally for sale, by developers such as Berkeley.

Delta Point, former offices being converted to provide 404 apartments for private rent

Delta Point, former offices being converted to provide 404 apartments for private rent

How Delta Point will look after conversion to flats

How Delta Point will look after conversion to flats

At Delta Point, work will include fitting a new roof and facades. Longcross London office director Paul Thomas said: “This significant award reinforces our visibility in the capital, establishes us as a lead provider in the PRS market and consolidates our secured workload for the next financial year.”

Elsewhere, in Basildon, Essex, the company is converting a former Ford Motor Company office block to add 384 apartments to rent. This too should be ready for tenants by the end of 2015.

Iain Murray, who joined Criterion Capital several months back as director of PRS, commented: “While last year was about planning and preparation, this year is about construction and delivery.  Now that work is under way across our first developments, we are working hard to ensure that we will offer unparalleled management services for when our first tenants move in later this year.”

Canterbury House in Croydon will also be converted to residential

Canterbury House in Croydon will also be converted to residential

The 1,500 flats should between them have a capital value of around £500m, and an annual rent roll of around £21m. Criterion is likely to be looking for additional financial partners, possibly selling on completed and stabilised blocks to long term investors such as pension funds, once all the flats are let.

Criterion has secured £115m of funding from backers including Barclays, HSBC and RBS for its projects, and has ambitious plans to deliver a further 5,000 homes by 2020. The company has taken advantage of permitted development rights, under a government initiative that has allowed office blocks to be converted to residential use, without planning permission being needed for the change of use.

What impact could deflation have on housing markets?

Guest post from Dr Tim Havard, Director of Professional Services UK, Estate Master

There has been a lot of chatter on the news recently about deflation. It has already been established in the Eurozone and there are worries that it will happen here in the UK. I am writing this in the middle of January when UK headline inflation has reached a record-equalling new low of 0.5% p.a., something which requires the Governor of the Bank of England, Mark Carney, to write a letter of explanation to the Chancellor.

So what is deflation? And why is it viewed with such alarm by economists and governments?

We are all used to inflation, the increase in prices over time. Inflation is something that is a feature of market economies, indeed it was the thing that most governments struggled with from the 1970s onwards when inflation ran out of control. The fact that costs and values would rise over time was something that anyone involved with a long term project had to take into account, particularly if costs and values change at different rates. This is something that tends to be true with property and is why, for example, Estate Master’s DF development appraisal software has a sophisticated and comprehensive escalation module that allows the modelling of cost and value changes over the lifespan of a development.

Deflation on the other hand, is a fall in prices and values over time. What is the problem with that, you might ask? Well, if you think about it, if you are rational and know that something you are going to purchase is going to be cheaper next week or next year and that you can wait to obtain it, then you should defer buying it. That is fine but the cumulative effect on an economy of most people doing the same thing is for investment to be delayed, for consumption to fall and for the economy to either stagnate or shrink, which also leads to a reduction in tax income for the government. This process actually increases deflationary pressures in the economy and reduces the ability for governments to stimulate the economy, so once you are in a deflationary spiral it is very difficult to get out of it. This was something that Japan experienced for more than 20 years from the early 1990s with government after government failing to get the country out of it.

A little bit of inflation is not a problem, indeed the general consensus is that you need some inflation in an economy to stimulate activity. It should be noted that the target inflation figure that the Government ask the Bank of England to achieve is 2%. In contrast, deflation is the big scary bogyman to governments and economists. It was the main reason for the Bank of England’s Quantitative Easing (QE) programme. QE is the modern equivalent of printing money, those with a decent history education will know that simply printing money is associated with hyperinflation (Weimer Germany and Zimbabwe are just two examples) . It should tell you a lot that the Bank and the British Government felt it was more important to risk inflation than to leave things alone and risk the economy falling into deflation.

Dr Tim Harvard is director of professional services UK at Estate Master

Dr Tim Harvard is director of professional services UK at Estate Master

So, if it does happen in the UK, will it affect the local and national property markets?

If deflation is established and it becomes a long term trend, then yes, it will do because the market for property is demand that is fundamentally derived from the underlying economy. If the economy is in a deflationary spiral then jobs and growth will suffer which will in term affect property markets. The situation in the Eurozone is a concern because the EU is an important market for the export of our goods and services. In practice, however, deflation of the type we may see in Britain is less of a worry for the economy in general and property in particular.

For one thing, experience tells us that general inflation and property inflation are often very different animals. You can have high levels of general inflation but low or negative property inflation. You can also have – and this is more common – low general inflation and high property inflation, in fact whilst the UK fails to build sufficient housing to meet demand, this is almost certain to continue.

Secondly, one concern, particularly for regional property markets, will be delayed by low or negative inflation, namely the expected rise in base interest rates and, therefore, mortgage rates. It was expected that the Bank of England would start to raise interest rates progressively from early this year to combat expected inflation and that this might squeeze regional markets such as the North West. The fall in inflation has kicked any potential rise in rates well into 2016.

Finally, much of the cause of Britain’s fall in inflation is down to a largely unexpected fall in fuel prices. Partly this is due to a fall in demand from China and the EU but it is mainly due to a glut of oil from US shale oil and fracking.  Everything that uses fuel as part of its production process – including property development – will benefit from the lower cost.  Lower costs tend to mean higher profits, particularly when the underlying economy is enjoying strong growth. Not all of the effects of lower oil prices are good, a degree of impetus for combating climate change was down to rising energy costs, but the fall will generally benefit the local and national property markets.

So yes, deflation is a concern, but it depends on the type of deflation and what we look to be going into looks to be reasonably ‘good’ deflation!

If you are involved in property development and investment you will still need good, robust financial models to explore the impact of rising and falling costs and values, and to factor in future changes in interest rates but, overall, Britain’s low or negative inflation rate is nothing to fear.

Politicians ignore renters at their peril, in election run-up

Politicians will need to finesse a housing policy that encourages supply, as they prepare their election manifestos ahead of the May general election. The trick will be in not penalising specific forms of provision following the election, as all forms of tenure need to be encouraged.

But, says Lucian Cook, director of residential research at Savills, the danger is that political expediency will get in the way of fundamental policies that are good for the country as a whole. “There is a strong argument that the maintenance of a consistent housing policy is difficult when, on the one hand, £1.4 trillion or 61% of all owner-occupied housing stock is located in Conservative constituencies while, on the other, 48% of the value of social housing is in parliamentary seats held by Labour,” he noted in Property Week.

“Let’s hope the political rhetoric does not cloud the underlying need to deliver much more housing across the range of tenures – particularly in the private rented sector.” Affordability is a growing problem and all parties agree that more housing is needed, notes Cook. “So the rapid growth of the private rented sector, the falling numbers in mortgaged owner-occupation, the restricted amount of new social housing being delivered and the value gap between London and the rest of the country are surely exercising policymakers in all parties.”

London rental market likely to see little inflation in 2015

Rental prices in London are set to stabilise through 2015, with a nominal 1-2% rise, according to agents Douglas & Gordon.

The company’s London Barometer predicts little real wage growth will mean consumer resistance to further increases in rents. However, looking back, their figures for 2014 show steady modest growth of London rents, showing strongest demand for smaller flats and larger houses.

One bed flats, for example, were costing an average £384 a week in the first quarter of last year, a rent that had risen to £403 by the year end. Two bed units had risen from £525 to £538. Three bed homes saw rents barely move, from £835 to £840 over the year – though they peaked in the third quarter at £858. Four bed homes also saw a an autumn peak, ending the year at £1,433 a week against a rent of £1,409 early in the year.

“Nearly double the number of new applicants were registered in December compared to twelve months ago, showing the rental market is very healthy,” said Virginia Skilbeck, lettings director. “As we go into an election year, generally people are inclined to put off major decisions until after the election so renting rather than buying for the time being is probably on the agenda for a large majority.”

“The number of properties we were instructed to re-let was twice as many compared to the same month last year, this is largely due to the fact that this time last year significant numbers of landlords were opting to sell up and cash in at a time many considered to be the “peak” of the market, whereas landlords are now electing to hold onto their investment properties.”

“We have had six months of consecutive growth in the size of our currently let property portfolio, which demonstrates that the lettings market grew consistently during the second half of last year, counterbalancing what was happening in sales.“

“Against this backdrop of a fairly volatile sales market, we believe that the rental market next year will be stable but with concerns over real wage growth our forecast is that rents in D&G Land as a whole will increase by a nominal 1% or 2%.”

In the sales market, worries over stamp duty costs are already having an impact, with the market for homes above £950,000 stalling. The agent says 2014 was characterised by vendors giving in to offers, with the result that more sales were concluded.

Genie heads to London with rent to buy plans

An innovative route through rental to home ownership is being launched in the south east, following success in the north east of England.

Gentoo’s Genie home purchase plan is being backed by £40 million of loan finance from the London mayor Boris Johnson. With the backing now in place, Gentoo is looking for development sites where it can create its first 500 homes under the new arrangement.

The project allows individuals who would not otherwise get the chance to buy, a way to purchase their own home. It does not require a large deposit, and allows long term renters to convert their interest into home ownership. It has already been tested in the north east, with 88 families now in homes provided under Genie.

“We set up Genie as a way to help those people who want to get onto the housing ladder but who haven’t been able to because of a number of reasons, including saving for a deposit while renting,” said Genie managing director Steve Hicks. “There has been a lack of innovation in the housing market which has left would-be homeowners feeling frustrated and unable to buy their own house.”

“This 10 year partnership with the GLA will help customers into a minimum of 2,000 new homes in the capital who otherwise would have struggled to own their own homes, because of the difficult market conditions in London.”

Genie is designed for first time buyers and long term renters. By overpaying on rent in a structured way, residents are able to buy a growing share of the home they live in, without the need to obtain a mortgage or find a deposit.

Funding is coming from the mayor’s Revolving Fund which gives recoverable loans to help fund new forms of affordable housing. Mayor Johnson commented: “This is one of a number of innovative schemes I’m funding to help the thousands of people looking for affordable properties in the capital. Plans like this provide more accessibility and flexibility for purchasers who may struggle to save large deposits and my funding will help accelerate the delivery of much needed new homes across London.”

Gentoo chief executive Peter Walls added: “We created Genie after asking ourselves the question where are our children going to live? We recognised that there is a large section of society who would like to own their own home but who have been unable to.”

“Genie is an ethical and unique product that helps people to access affordable homes in the locations they want to live. We’re thrilled that the GLA has recognised Genie is an innovative solution to help these people and we look forward to seeing people move into their own homes.”

PRS predictions for 2015 – part one: rents

What is the outlook for the UK rented sector in 2015? Following is a round-up of predictions from those in the sector, focusing on the likely direction of travel for rents.

The central London market, which operates in its own bubble due to a range of international influences, could see strong market growth. Some agents – but not all – are predicting strong rises. Marsh & Parsons predicts 10% growth in central London rents, while Knight Frank pencils in a more modest 3.5%.

Peter Rollings of M&P commented: “The rental market will be where much of the action takes place in 2015. Those relocating to the capital for work are now biding their time before purchasing their own portion of London property – until question marks surrounding additional property taxes are erased. This will push demand in the corporate lettings sector even further, and the biggest rental increases are predicted to be among one or two-bedroom flats.”

“Supply of rental properties looks set to be sustained, but any regulatory changes to tenancy fees under a new government could inflate rents artificially. The powers that be need to ensure that landlords are not spooked out of the market by unnecessary layers of legislation, and that aspiring property investors don’t take their money elsewhere.”

In contrast, Benham & Reeves predict that rents will stay flat in the central area, with those in outer zones rising, as renters migrate to more affordable areas that remain in easy commuting distance to central London.

At Jackson-Stops & Staff, the glass is certainly half full, according to chairman Nick Leeming. “For investors, the long-term outlook is bright for buy-to-let, particularly in and around city locations with good transport links. The demand from Generation Rent will continue to grow for high quality homes.”

Outside London and the south east, Knight Frank expects rents to average a 2.2% rise. And Sue Foxley, head of research at Cluttons, expects rents to rise across the country between  3 and 5%. Chestertons, meanwhile, expect a relatively flat performance from private sector rents across the UK.

In the wider UK housing market, the expectation is there will be lots of hot air and promises – and little activity – due to the general election. Members of the National Association of Estate Agents think demand will continue to advance modestly ahead of supply. Polled recently, 34% saw the base rate rise having the biggest effect on the housing market in 2015, while 32% put stamp duty changes top, and 32% believed the election will be the largest influencing factor.

“The General Election will be a pivotal event for the housing market next year, with all three main parties pledging to build more homes should they be elected. We have already seen the current government put policies in place in an attempt to tackle the problem, with the announcement of new garden city developments, as well as the reforms to stamp duty” said Mark Hayward, NAEA managing director .

“These changes are still not enough. The lack of capacity within the current market means that the gap between supply and demand probably won’t close for some time – we currently don’t have the resources to respond to the problem, and this is another issue that needs addressing.”