Institutions Investing in Residential Property
March 29, 2010
In property and political circles, the subject of whether institutions will invest in the residential private rented sector
property is a popular one.
Interestingly, up until the middle of the last century financial institutions were very large residential landlords. When you look at other cities around the world many housing estates are owned by funds.
One of the positives that I see coming from institutions investing in residential property is the better service that would result to the tenant.
Funds and institutions are generally good at adhering to building standards, health and safety, etc.
It would be great to have more of this in the residential sector. We need to move away from the attitude of that some developers have that all they need to do is throw the property up, and as long as it is sold quickly they will be ok.
Many owner occupiers and private investors have been caught out by this.
I have been in discussions with many of the institutions over the past year or so regarding investing in the Private Rented Sector (PRS). They certainly speak a good game. Some are genuinely interested, others in my view have seconded a commercial property ‘expert’ to look at the residential sector with what seems to be the aim of writing a report justifying why they should not invest in residential property and then go back to looking at commercial investments. This is very disappointing.
My observation, having invested in the PRS for many years, is that it must be the largest asset class in the UK where the private individual has benefited more than the large institutions.
However, there are positive signs, Aviva have put their hat in the ring, as have Aegon, and there are others. When I was in MIPIM recently I put an offer in for an excellent development for a large financial institution which is ongoing – it’s a great opportunity for both capital and rental growth over the next decade.
Recent figures show the PRS represents over 20% of housing in London. This is still significantly less than many European cities – but there is clearly a demand for stock in this sector. The private investor has been less active
in this sector over the last few years. I believe this is principally due to the lack of sensibly priced finance. There is no doubt investors still look to property as a strong long term tangible asset.
In my view this is the right conclusion, the question is whether the institutions come to the same conclusion.