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Investors raise funds to buy more German rental homes

In an illustration of how institutional players could move into the UK market – once a decent level of rental stock is in play – two German companies have announced a second joint venture to buy residential stock.

The partnership also provides an example of how a financial institution can team up with a property management specialist, to enter the private rented sector in some scale. ZBI currently manages around 17,000 homes across Germany, with a total investment of around EUR1.5bn.

Last year, Deutsche Investment and management company ZBI created an investment fund which spent around EUR160m on housing in the Berlin area. Spurred on by the success of that fund, the pair are now starting a second fund, which will invest around EUR200m in and around Berlin.

The new fund expects to deliver investors an average 5.5% return, over an expected 10 year term. The pair will consider up to 25% new construction, and are prepared to look at forward funding new developments.

“We look forward ton continuing this successful model of partnership property,” siad Dr Bernd Ital of ZBI. “The cooperation between ZBI and Deutsche Investment guarantees a safe and efficient management of the fund for our institutional investors.”

At Deutsche Investment, the decision to undertake a second fund was off the back of a good pipeline of projects identified as the first fund was invested. “A balanced risk-return profile of all investment properties in the fund will provide a a low volatility,” said DI’s managing partner Florian Mundt.

Who rents their home? Report breaks down demographics

The numbers of private renters in the UK now tops the number of social renters. The private rental sector has continued to grow in recent years, doubling in scale from 2 million households in 1980 to 4 million today. The growth means they are now more important as a group than social renters, whose numbers have subsided to 3.7 million today, from 5.4 million in 1980.

Three quarters of private renters are under 45 years old. As a group, renters are younger than both social renters and home owners. A quarter of them are couples with no children and 20% are single occupiers under 60. Just over a third are parents – 23% are couples with dependent children, while 12% are lone parents. Just 14% of rental homes are occupied as multi-person households.

The report also reveals that, despite the media’s frequent stories about “rogue landlords”, private renters are actually happier than social renters. Of private renters, 84% of those surveyed were either very or fairly satisfied with their accommodation, compared to 81% of social renters. They were also happier with the local area they lived in – 87% of private renters said they were satisfied, compared with 82% of social renters.

“Landlords are an easy target in the media with stories of rogue behaviour, revenge evictions and poor accommodation,” commented Graham Kinnear from Landlord Assist. “However, this survey shows that more landlords than ever before are providing good quality accommodation for their tenants.”

Unsurprisingly, given the need to save for a larger deposit nowadays, the average age of a first time buyer is increasing, and 25% of these buyers are now in the 35-44 age range.

Berlin shows London the way to build rental market

The residential rental market in Berlin is growing rapidly, with potential lessons for those looking to improve the situation in London and other UK cities.

Like London, Berlin has been seeing a growing population, which increased by almost 50,000 from June 2012 to June 2013. Like London, the delivery of new homes is failing to keep up with demand – and rental prices are rising as a result.

Unlike London, the market and city authorities in Berlin are reacting, and new supply is being delivered. New building starts in the city in 2013 equated to 0.7% of the total stock, a figure fully 40% ahead of London.

A new report identifies a pipeline of 13,900 new homes for rent currently under development across 191 construction projects. Further projects are expected to come into the development pipeline, spurred on by local government. City authorities calculated 137,000 more new homes will be needed by 2025, or around 10,000 a year.

Breaking down the participants in the Berlin market, the research by Howoge and BulwienGesa identifies 63% of the projects originated by the private sector, 29% by municipalities, and 7.5% by cooperatives.

Rental remains the predominant home type in Berlin, with 86% of the city’s 1.9 million homes currently rented.
One way the city authorities have directly helped promote more building is by adding extra staff to district offices, and paying a bonus for each new approved home. Urban development contracts are used to help share the burden of local infrastructure, and the benefit of increased land values after development. More herer on how Berlin authorities are planning the growth of their city.

Housing minister defends pace of rental programme progess

Housing and planning minister Brandon Lewis has jumped to the defence of the government’s efforts to promote the private rented sector.

“Thanks to our dedicated Private Rented Sector Taskforce, we’ve identified more than £10 billion in potential investment for homes specifically built for rent,” says Lewis in a letter to the Financial Times, just published. He insists the £1 billion Build to Rent fund, designed to pump prime development of long term rental housing, “is well on track to have contracts in place for up to 10,000 new homes specifically for private rent by March 2015″.

Lewis’s decision to leap to the defence of government initiatives comes after a critical article in the Financial Times, published on July 29. That article noted the failure of a £7 billion guarantee fund, half to support affordable housing development and half for private rented projects. “Whitehall had planned to back investors who bought rented homes, but the structure of its guarantee did not cover the construction period, which is seen as the riskiest part of the housebuilding process,” said the FT.

Emma Reynolds, Labour’s housing spokesman was quoted being critical of the scheme’s failure, while James Coghill of Savills also noted that the market had failed to be inspired by the government plan.

Separately, the Build to Rent funding – a loan from government that will have to be repaid – has seen some take-up and was described by Coghill as a “catalyst”. That initiative has not been without criticism, however, and required developers to bid for a tranche of funds, then wait for due diligence to be completed. The complicated nature of the scheme has, according to other reports, pushed some developers to choose open market sale instead as a simpler exit from housing projects.

In his letter, Lewis insists the original article “portrays an inaccurate picture of our efforts to build a bigger and better private rented sector.”

Genesis plans further private rented sector growth

Housing association Genesis is one of the small numbers of organisations from that sector that has committed to growth into the private rented sector.

The group is looking to build around one third of its 1,000 homes output a year for outright sale, or market rent, according to chief executive Neil Hadden. The balance will be its traditional affordable home format, or some form of intermediate tenure, usually shared ownership. It is already building projects to the private tenure formats in Chelmsford and Barnet, and is looking to exploit the government’s Build to Rent funding programme to advance projects.

Housing associations are – as a group – suffering. The grants being offered to develop homes for rental in the subsidised sector – to those on local authority lists – are reducing. They can borrow from the financial markets, but that has a greater cost long term. Or there are alternative parts of the housing market they can get into, to create additional revenue streams.

Among its peers, it appears that currently the majority of housing associations are shy of taking such a directly commercial move such as moving into the development and management of private rented sector homes. However, some others are getting involved, such as Thames Valley, which has set up arms-length subsidiary Fizzy Living to develop a private rented sector brand and portfolio of property.

Genesis looks after 33,000 homes across London and the south east, including 401 market rent apartments in the Halo tower development in Stratford, which the group sold to investor M&G in a sale and leaseback deal in 2012.

“The reduction in public subsidy for affordable housing has meant we’ve had to look at different ways of providing that subsidy,” Hadden told Property Week recently. “Getting involved in more commercial activities is one way of providing funding to bridge that gap.”

Genesis has already successfully tapped into the government’s Build to Rent funding pot, winning a £45.5 million bid in April this year, to help fund the development of 485 private rented homes – more here.

German investor closes massive Dutch housing deal

German property investor Patrizia has signed a 5,500 home acquisition deal, the largest transaction seen to date in the Dutch housing market that gives a hint of the way the UK rental market could go.

The EUR578 million deal will see Patrizia taking on a mixed rental housing portfolio previously owned by Dutch housing association Vestia. The investor will place the homes within one of its investment funds, which will use money from one of the German pension funds as its major source.

Could an investor of the scale and confidence of Patrizia enter the UK rental market as an investor? Having disclosed why it likes the Dutch market, there are some common themes, so such a possibility is not far fetched.

The reason for Patrizia investing in the Dutch market is down to its belief in long term value protection and growth. This is due to projected population growth as far ahead as 2025, falling average household sizes and therefore continuing significant demand for housing.

“For some time now, our institutional investors have had such confidence in us that they are investing with us outside their familiar national borders,” commented Klaus Schmitt, COO of Patrizia. The company says it is on track to become Europe’s leading real estate investment company.

The portfolio that Patrizia has bought into has 340,000 sq metres of residential floorspace in total, with just 3% vacant. Around 70% of the homes acquired are currently subject to rent control.

Patrizia already operates three investment funds specifically focused on the residential market. Of these, two are investing in German properties, with a third looking wider across Europe for its investment opportunities. Its major German investment deals included the EUR1.4 billion purchase of a 21,000 home portfolio in 2012, and a co-investment in a 31,900 unit portfolio in 2013.

Patrizia is already investing modestly in the UK, through minority stakes in commercial property deals. It holds 10% of a company holding properties in Birmingham, Bracknell and Camberley, and also took a 5% interest in the acquisition of the Winnersh Triangle (or IQ Winnersh) commercial estate west of London.

New online portal to shake up lettings and home sales markets

A group of estate agents is launching a new online letting and sales portal, to challenge market leaders Rightmove and Zoopla.

OnTheMarket is due to launch in January 2015, and is backed by some of the country’s largest estate agents. Members of the group formed to deliver it, called Agents Mutual, were driven to act by the rising charges that existing websites are charging them for listings.

“OnTheMarket has the appeal to attract the full spectrum of consumers and it has the gravitas to distinguish our brand as the natural home of locally visible, full service independent estate and lettings agencies,” said Agents Mutual chief executive Ian Springett.

The group already has more than 2,900 lettings and estate agencies committed to join, with another 100 joining every week. When agents sign up, they commit to advertising all their properties for 5 years and to list them on only one other competing portal – a commitment that threatens to break the duopoly in the market that Rightmove and Zoopla appear to have. Among the big brands that are reported to be on board with the new venture include Savills, Knight Frank and a number of regional estate agency chains.

With consumers increasingly using tablets and smartphones to access the internet, it will be interesting to see how the new portal differs from its legacy competitors.

Orbit recruits head of housing task force to board

Housing association Orbit Group has invited Andrew Stanford to join its board, in a strong signal that the organisation is looking to take a more proactive stance in the private rented sector.

 

Andrew Stanford, head of the PRS taskforce

Andrew Stanford, head of the PRS taskforce

Stanford is currently head of the Government’s Private Rented Sector Taskforce, which is charged with encouraging the growth of a professionally managed private rented housing market in the UK, in any way it sees practical. “We are delighted to have attracted someone of Andrew’s experience and calibre to what is already a highly experienced board team,” said chairman baroness Tessa Blackstone.

A chartered surveyor, Stanford worked for more than 20 years at respected property agency Cluttons, where his responsibilities included managing a major residential estate in South Kensington for the Wellcome Trust. More recently, he set up his own agency, Stanford Mallinson, which offers consultancy and advice to those active in the UK residential market.

Orbit is a broad based housing association with properties across the Midlands and South East, looking after more than 37,000 affordable homes. It developed 875 homes last year, and aims to add 1,300 this year. But while building a small number of homes for open market sale, according to its group websites, Orbit has yet to start building a private rented sector portfolio.

Mayor plans housing bank to fund London rental properties

London mayor Boris Johnson has unveiled plans for a “London Housing Bank” to fund housing projects in the capital. A £200 million fund could potentially accelerate the building of up to 3,000 homes, for low cost rental.

The bank would help activate some of the stalled 200,000 planning consents that have already been granted across the region. There are various reasons why they are not yet built: “Often, this is due to the funding and sales constraints which can limit the pace of building,” says a mayoral press release.

The idea is that the home building could be accelerated. Completed homes would then be offered at a low cost rent, and turned over to market rent in due course. The Housing Bank would be repaid no later than 10 years after investing, through institutional sales.

“We’re doing everything we can to double house building across the capital and address a 30 year failure to build enough homes for this thriving city,” said mayor Johnson. “The proposed housing bank is just one of several highly innovative new schemes we are pioneering.”

Other ideas for the housing bank include the idea of encouraging off-plan selling, and offering funding guarantees. Funding could come from public and private sector investors, it is thought.

The consultation is currently being extended to relevant parties in the industry, with their thoughts required by a 21 May deadline.

Bovis to build 510 private rented sector homes

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.”