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Stock shortage sends buy to let investors into the country

The UK has seen the number of rental households grow by one million since 2009, as renting increasingly becomes the tenure of choice for residents. Around 3.9 million households now rent in England and Wales, according to a new report from agents CBRE.

To date, the growth in the supply of rented homes has been facilitated by buy to let investors, and owners from overseas, note the agents, with little interest shown on the part of institutional investors. Most of those foreign buyers have been focused on the greater London area, or on established rental markets in major towns such as those which provide homes for workers commuting into London.

As existing stock becomes harder to obtain, investors are turning their attentions to other parts of the UK, say CBRE, prepared to consider diversifying risk by buying to let in other locations around the country.

The best - and worst - towns in the UK for rental returns

The best – and worst – towns in the UK for rental returns

A combination of tough times for those in work, with many people not getting automatic inflation-linked pay rises; and a growth in demand from those buying properties for rent; has meant capital growth has beaten rental growth in all regions during the last year. The resulting yield compression is likely to continue through 2014, suggest CBRE, despite more new build housing being delivered to the market.

“The robust performance of the private rental market in London, which continues to witness the strongest growth, has mostly been supported by employment growth in the business and financial sectors, affordability constraints and a lack of available mortgage products on the market,” said Jennet Siebrits, head of residential research at CBRE.

“While residential rents in regional areas across the UK have not yet experienced rental prices in line with those of the capital, CBRE now expects higher rental value growth to permeate out to many of the regional towns and cities.”

Prudential to invest £156m in UK housing market

Insurance giant Prudential has announced it will help fund the delivery of 1,000 homes across Wales. The company will lend to up to 17 housing associations, allowing them to start building new projects with the support of long term finance. The projects will also receive £120m of government backed construction grants.

The funds will be administered through Prudential’s asset management subsidiary, M&G and are part of a commitment made by major insurance companies to plough significant investment into Britain’s infrastructure, in a project agreed last December. The insurers are acting since a European Union ruling that allows them to widen the types of long term investment vehicles they can put funds into.

The Coalition government announced last summer that it would spend £3bn to deliver 165,000 new homes by 2018, through housing associations. But while heralded as a major commitment from government, the plan does rely on other, private sector sources also committing funds to ensure schemes go ahead.

Speaking at the World Economic Forum in Davos – and as reported by the Daily Telegraph – Prudential’s chief executive Tidjane Thiam said: “The deal is a tangible sign of Prudential’s commitment to the long-term funding of the new housing and infrastructure we need to deliver sustainable growth for the UK.”

Prudential is a major lender to the social housing sector. It remains to be seen whether it will be so keen to back involvement in the private rented sector in the UK.

New entrant to private rented sector in London

A new entrant to the London property market, In-place, is promising to deliver well-managed new homes to London’s private rented sector. And with strong credentials, the company is set to deliver high standard new apartments in London Underground zones 2 and 3, at the same time helping to grow institutional interest in the sector.
Giles Clarke is the man leading In-place. Clarke spent the last few years at major London landlords the Grosvenor Estate, and Crown Estate; two examples of organisations that manage their properties responsibly, with an eye on long term value rather than short term profit. He is backed by unnamed investors who will give him backing to buy two or three development projects each year.
Clarke says there is currently a gap in the market, between investors who see the sense in getting into the residential rented market in London, and developers seeking an opportunity to profit from building.
“What seems to be missing are businesses or people that understand how the two can be properly joined,” Clarke told Property Week in an interview, “so you have a single approach to creating high-quality residential investment stock – not as a developer, not as an investor, but as a business that can join the two things and do both at the same time.”
In-place will look for sites with between 100 and 200 units, aiming to develop them in joint venture, or acting as a funder to help unlock projects held by hard-up development and building companies. Such properties will rent typically for £3-400 per week for a one bed flat, or £4-600 for a two bed.
Clarke has said he will not be looking to do projects right now in the central area of London. Here, he says, most developers are currently exploiting overseas investor demand by selling individual units off-plan in Asia, and with that option, In-place will not get a look-in.
In-place has promised two or three deals during 2014, to get the ball rolling. It will be looking to grow a long term portfolio, as well as offering medium term investment assets to the market, that are well managed and provide long term rented homes for the UK’s mass of urban workers.