Tag Archives: invesco

Rent controls could help PRS develop

As the May general election approaches, attitudes towards the Labour Party’s suggestion that private sector rents should be controlled is starting to receive a wider level of support. And some of that support is coming from new institutional investors in the sector.

In comments reported in the Financial Times, John German of Invesco Real Estate, who is also on the residential committee of the British Property Federation, indicated that some level of control would not cause a problem for institutional investors, who stand poised to invest billions in the UK private rented market.

“There are rent controls and rent controls,” said German. On rent rises he said some upper cap on annual increases, perhaps indexed, “would create exactly the type of investment that a lot of institutions are looking for, which is a linkage to inflation”.

Labour has proposed among its election policies that it would look to introduce rent controls to limit increases; and give tenants greater security of tenure by offering longer tenancy agreements. “The feedback I get from the political parties is that they get the idea residential property is a huge asset class in the UK,” added German. “They see investment by institutions in the UK private rented sector as an ideal way of trying to tackle some of the housing problems in the UK.”

Invesco, already active in other mainland European residential investment markets, has indicated it thinks the UK PRS market is fundamentally attractive with the potential for attractive returns. And the company has already backed developer Be:Here with a £33m investment in its PRS scheme in Hayes with the promise it will support further Be:Here projects with investment.

And writing in the New Statesman, London Labour MP David Lammy argues for a middle line when considering rent controls. “Let me be clear about what I mean when I talk about rent control. I don’t mean the old-school “first generation” rent control that was introduced in the UK during the Great War, which prevents any increase in rents, diminishes investment returns in real-terms over time, and discourages people from becoming landlords. I don’t mean the type of rent control that keeps rents so low that they are not enough to pay for the proper maintenance of a home in a liveable condition. I mean rent controls that nod to the market but allow for the realities of what it is to have a home to live in; the type that are espoused by those who could hardly be called left-wing ideologues, including Angela Merkel and Michael Bloomberg.”

He favours the German system, noting that:
• renters have tenancies with no end date and can only be evicted under a restrictive number of circumstances, such as being behind with rent, or damaging the property
• landlords cover the charges of letting agents (i.e. they get included in rent)
• initial rents cannot be more than 20% above average local rents
• rent rises are capped at 20% over three years
• rents are linked to a commitment from the landlord to retain the property in good condition
He concludes: “Perhaps a system like Germany’s is exactly what London needs to address the uncertainty and unaffordability faced by tenants in our private rented sector.”

Lammy’s linkage with the German market is highly significant. Invesco has already invested more than £100m in housing in that market, effectively declaring itself satisfied with the German system. And German investor Patrizia, which has made a highly successful business out of investing in the German private rented sector, is now looking to create a similar, large scale, operation here.

Lammy further argues that the British supply problem “has more to do with cautious developers, the planning process, and a scarcity of developable land than it does with rent prices.” He argues for conditions to encourage more institutional development, such as concessions on rent controls for new developments. “Rent controls should not apply to any new property built after 1 January 2014. Or maybe they should not apply to the first tenant of any new development; that will have the added benefit of encouraging longer term leases by property developers.”

Concludes Lammy, MP for Tottenham: “Though not a silver bullet that will singlehandedly solve the crisis, we should think about how rent controls – done sensibly – can be part of a comprehensive plan to ensure that all Londoners can afford a home in our city.” The New Statesman article is here.

Invesco says UK rental market promises strong investment returns

Institutional investors are ignoring the residential market in the UK at their peril. The sector has continued to outperform other asset classes, according to a new research report from Invesco Real Estate, and presents good opportunities for investors as the market grows.
The opportunity is laid bare in a new report from Invesco, harnessing the power of its global research team in a H2 2014 European Market Outlook. The report reviews all types of property investment, from retail to offices, industrial and hotels as well as residential; and sets the opportunities in each market segment against one another and against peer country markets.
The report reckons the UK private rented market to be worth around £990 billion, making it the third largest residential investment market in Europe, at the moment. “Our research shows that despite rented being the fastest growing tenure and the highest performing real estate asset class in the UK, less than 5% of rented housing is owned by institutions,” says the report.
With more institutions entering the market, it is likely to become more transparent, and more liquid. Overseas investors are likely to head to the UK, as existing stock in Germany and Holland looks relatively expensive. And, with the UK population set to grow, and no apparent political will to solve the supply shortage, demand will remain strong.
Invesco says the fundamentals are good. “Forward funding development to create the stock, with the focus on the strongest markets of Greater London, the south east and major UK regional cities, should generate strong returns.”
“We forecast that capital growth should be strongest in London and the south east, where the shortfall of good quality PRS is at its greatest.”

Invesco commits £33m to private rented sector with Hayes buy

Investment manager Invesco Real Estate has agreed to forward purchase a £32.5 million private rented sector investment in Hayes, west London. The deal with Be:Here, building group Willmott Dixon’s private rented sector developer, will fund the development of 118 flats that will be ready for renters in 2016.

Invesco has made the investment in what is called the Gatefold Building, on behalf of an unnamed local authority pension fund.

Be:Here will develop the Gatefold Building, with Invesco’s backing

The site has been through a number of hands recently, with Be:Here purchasing it from previous joint owners Development Securities and Cathedral Group in December. Dev Secs and Cathedral bought the 18 acre Old Vinyl Factory site in Hayes in 2011, and have secured permission for a major comprehensive redevelopment including more than 600 homes. In recent months, the pair have agreed a merger, and have plans to develop their own private rented sector homes within the project boundaries.

Be:Here will develop out the site in Hayes, and will manage the units on an ongoing basis following completion. The company has another site, in east London, and will now be able to recycle the cash from the Hayes project into building up its portfolio.

While the project is Invesco Real Estate’s first commitment to the UK private rented sector, the company has already committed funds to similar projects elsewhere in Europe. Around £106 million has been spent in Germany, supporting two multi-family housing projects, and new director of residential investments John German is keen to do more.

“We believe it is paramount to form partnerships with developers who are able to create viable investment opportunities in this sector and we are therefore pleased to be partnering with Be:Here, an experienced developer, who has a strong track record of delivering similar high quality schemes in Greater London,” said German. “We hope that this will be the first of a number of similar transactions with Be:Here.”

“IRE believes that the greater London residential market remains one of the most important real estate markets in the world for occupiers and investors, creating long-term demand and liquidity for high quality products. We expect investments in this market to out-perform the mainstream UK residential market.”