Pension funds begin move into PRS after a slow start

Dithering insurance companies have already missed out on some of the cream in the London residential rented sector. That’s the accusation from Peter Bill, property columnist in the London Standard, after he pored over the week’s 2013 results from housing developer Berkeley Homes.

Bill notes that Berkeley started the year with 729 rental homes on its books, and has subsequently sold 675 of them, for a profit of £40 million. [For some residential developers, newly completed units were held back for rental where they proved difficult to sell, at a price that would book a profit; the legacy of overpaying for development land in the boom times]

Of the total sold, 534 were apparently sold to M&G Investments, which paid Berkeley £105 million for the portfolio in June 2013. The deal would have booked Berkeley close to £30 million in profit.

“That profit could have been gifted to policyholders, if M&G had acted a few years ago,” says Bill.

However, insurance companies remain inherently risk averse, and with good reason – they’re looking after your pension pot. Anne Kavanagh, global head of asset management at AXA Real Estate, told an audience at last week’s London Real Estate Forum that her company was happy to invest in all sorts of real estate, and will lend to others in order that they can do so. But they absolutely will not lend on development projects – it’s still considered too risky.

However, M&G is now clearly playing catch-up, and has decided the private rented sector is something worth investing in. A report from Property Week suggests the company is about to agree the £45 million forward funding of a 152 rental apartment scheme in North Action. The Victoria Square development is being put together by Hub Residential and features 16 and 10 storey towers. Both this project, and the Berkeley properties, are being held within a UK Residential Fund, into which M&G intends to add further mid-market properties.

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