Private Rented Sector: Looking Back and Moving Forward

Rajiv Mehta, Asset Manager – Business Development, Young Group

Rajiv Mehta, Asset Manager – Business Development, Young Group

As 2014 is drawing to a close this PRSupdate article will focus on what has been happening over the past 12 months in housing and the Private Rented Sector, as well as a brief look ahead to 2015.

House Building

While the lack of housing stock is a current hot topic it has been encouraging to see statistics, released by the Government, which shows that house building has steadily been on the rise since the financial collapse of 2008.

The number of private dwelling construction starts for 2014 is set to exceed the 2013 levels by at nearly 25,000 units (106,750 in 2014 compared to 81,980 in 2013).

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Investment Analysis And Performance Reporting

Dominic Martin, Former Member of the Department For Communities & Local Government's Private Rental Sector (Residential) Taskforce

Dominic Martin, Former Member of the Department For Communities & Local Government’s Private Rental Sector (Residential) Taskforce

Introduction

New Investment Market & Data:
The UK is witnessing the emergence of a specifically designed and managed ‘institutional grade’ residential asset class, loosely referred to as the new Private Rented Sector (PRS), or as Build-to-Rent. However, for any investor, be this institutional, private equity, sovereign wealth funds or housing associations, there is a need to underpin entry into this sector with good quality data and analysis.

Therefore, this article looks to acknowledge some of the existing sources of data and provide commentary around these. Secondly, it highlights areas where improvement can be gained.

Investment Asset Performance:
In the medium to long-term, the aspiration from an investment performance perspective is that this market resembles the US ‘multi-family housing’ market (MFH), where detailed accounts of the performance of the investments are standard in any investment particulars. Investors need certainty around the investment performance of this asset class. This will comprise both the annual net returns (i.e. income less annual maintenance and management costs) and total long term returns (driven by either yield compression and/or House Price Inflation).

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Operating Institutional Private Rented Sector Assets

David Mackenzie, Director of Asset Management, Young London

David Mackenzie, Director of Asset Management, Young London

With any businesses’ strategic planning, it’s vital to understand what success looks like at the outset. The Private Rented Sector is no different.

When investors are scoping Private Rented Sector investments, the operational aspect is just as important as the investment strategy. How will the assets be managed, the rents set, residents sourced, the homes maintained, refreshed and further down the line, refurbished?

Asking – and answering – these questions at the outset informs the operational strategy, goes some way to informing the costs involved and can provide investors with Key Performance Indicators (KPIs) with which to sense check progress.

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Can The Planning System Help Or Hinder The Creation Of A Large Scale Private Rented Sector?

Karen Cooksley, Partner - Head of Planning, Winckworth Sherwood

Karen Cooksley, Partner – Head of Planning, Winckworth Sherwood

Residential developers who build for sale have, for many years, voiced consistent concerns about the length of time it often takes to navigate the planning system and achieve the consent required to build much needed homes. Inefficiencies in the processing and determination of applications can result from a lack of resources or experience at officer level.

There is frequently a lack of political will or leadership to help communities understand the need for more homes to be built in their locality and the wider social and economic benefits which will result. Each local authority has different policies and there is a frequent tendency to apply planning law and national policy in a different way.

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Land Acquisition In The Private Rented Sector

Darryl Flay, Chief Executive Officer, Essential Living

Darryl Flay, Chief Executive Officer, Essential Living

Rising house prices, demographic change and the tight mortgage market have led to a doubling in the number of renters in the UK over the last decade.

While no one doubts the UK’s penchant for ownership is about to change any time soon, there’s a huge opportunity in unlocking the kind of institution-backed sector that supports housing in the US. Replacing the reputation for poor standards underpinning the buy-to-let sector could, however, redefine the way the public approaches renting, while creating an exciting new asset class for institutional and, eventually, retail investors.

A growing number of large investors have been posturing on the sidelines for years and, over recent months, the talk has turned to action with major schemes in development across London and Manchester.

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Funding Private Rented Sector Housing

Andrew Screen, Managing Director, GVA Financial Consulting

Andrew Screen, CEO, GVA Financial Consulting

The emergence of a significant Private Rented Sector (PRS) development and funding market has been driven initially by the public sector through various initiatives, including the formation of the Government PRS Taskforce and followed closely by investors.

These early investors included M3 Capital Partners, M&G, Apollo, Grainger, AGP, Qatari Diar, Akelius, Oaktree and Sigma, with many following suit in the last 12 months. On a monthly basis new investors are entering this market with c£500m to invest, all seeking PRS developers and suitable investment opportunities in the UK’s top 35 cities.

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Another Successful RESI

Cathy Fuller, Head Of Events at Property Week

Cathy Fuller, Head Of Events at Property Week

On September 10th the property industry’s best and brightest descended upon the Welsh countryside to attend the UK’s biggest property event, RESI 2014.

Once again we had more than 1,000 delegates in attendance networking, discussing the current state of the residential property sector and enjoying a full conference programme of opinion and debate, Chaired by Mark Eason, the BBC’s Home Editor.

Leading developers, researchers, financiers and politicians took to the stage to talk about the key issues facing the sector and I have collated some of the biggest talking points to come out of this year’s conference.

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Young Group at RESI 2014

RESI Café 2014

RESI Café 2014

Once again, Young Group was in attendance at the annual Property Week RESI Conference, and sponsor of the ever-popular RESI Café.

The event was a resounding success with around 1,000 of the residential property sectors’ good and great in attendance.

All of the conference delegates received a copy of the latest biannual PRSupdate publication. The overarching theme of this issue is ‘Delivering the Private Rented Sector’, which was received with great enthusiasm and complemented the themes presented by the event’s speakers.

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Looking Ahead to RESI 2014

Young Group is again gearing up for the annual Property Week RESI conference, where we will again be sponsoring the RESI Café. We will also be providing conference delegates with a must read publication in the form of the latest edition of our biannual PRSupdate.

But we’re not the only ones looking ahead to the event. Cathy Fuller, Head of Events at Property Week, is here to provide us with a rundown of the latest preparations for, arguably, the most important date in the UK residential calendar.

Cathy Fuller, Head Of Events at Property Week

Cathy Fuller, Head Of Events at Property Week

RESI, the UK’s premier residential property market conference, is back for its eighth year and with our best line up yet.

I am proud to say that between September 10-12 the Celtic Manor, host location of the 2014 RESI Conference, will welcome more than 1,000 delegates from across the investment and development sectors; providing a forum for intellectual debate and unrivalled networking opportunities.

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In Conversation With… John Grimes

John Grimes, Managing Director, Drummond House Developments Ltd

John Grimes, Managing Director, Drummond House Developments Ltd

We are regularly in conversation with a plethora of leading figures in the property, investment, finance and charity sectors, many of whom are guest authors for PRSupdate. The purpose of this feature is to get them to discuss the topics and issues that are currently affecting the Private Rented Sector.

If you would like to take part in an In Conversation piece then please do get in touch with us.

Today we are in conversation with John Grimes, Managing Director at Drummond House Developments Ltd.

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Changes to Capital Gains Tax Target Non-Resident Sellers

Peter Sarney, Director, Felton Pumphrey

Peter Sarney, Director, Felton Pumphrey

The imposition of Capital Gains Tax (CGT) on the disposal of UK residential property for non-residents came as a surprise to many people as the UK government seeks to level the playing field between those who are tax residents in the UK and those who are not.

Unlike many other countries, that tax gains on the disposal of residential property situated in their jurisdiction, the UK has not generally charged CGT on gains made by non-residents. The result of this is that a gain would either be fully taxable in the country of residence or escape taxation entirely.

The UK government considers this to be unfair and has proposed legislation to tax the gains on residential property of those who are non-resident in the same way as gains made by those who are resident.

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Number of Amateur Landlords on the Increase

Rajiv Mehta, Asset Manager – Investment, Young Group

Rajiv Mehta, Asset Manager – Investment, Young Group

According to a new report the level of amateur (part time) landlords, those who use their investment property to supplement their other income, have reached the highest ever levels.

The National Landlords Association (NLA) claims that amateur landlords now make up more than 70% of the Private Rented Sector and that they typically own around four properties.

Due to the current strength of returns seen in the rental market 25% of these amateur landlords are intending to add to their property portfolio with 40% planning to use buy-to-let financing to fund their lettings portfolio.

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Spring/Summer 2014: Private Rented Sector Operations – Why Function When You Can Really Fly?

Neil Young

Neil Young, CEO Young Group & Young London

With its focus on operational aspects of the Private Rented Sector (PRS), the latest edition of our Biannual PRSupdate publication has gathered together a selection of articles that gives a flavour of the elements required in managing PRS assets on a day-to-day basis.

Undoubtedly clearly defined processes, supported by robust procedures are at the heart of successful PRS operations, as Kris Wadia explains. Kris was, until recently, a Managing Director with Accenture, a global consulting organisation.

He is now CEO of Humanized Leadership, which advises businesses on profit improvement. However, it is how those processes are brought to life within the business and delivered (both internally and externally), and the tools that are employed that have the potential to differentiate between a business that functions and a business that flies.

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Spring/Summer 2014: Processing The Profits

Kris Wadia, Founder of Humanized Leadership

Kris Wadia, Founder of Humanized Leadership

Businesses operating in the Private Rented Sector (PRS) can increase profitability through Process Improvements.

Let’s begin by understanding the state of the UK PRS in early 2014, using the limited, and sometimes conflicting, datasets available. The UK PRS demonstrates all the characteristics of an immature market in that:

  • 89% of landlords are private individuals and are responsible for 71% of all dwellings in the PRS (DCLG Private Landlord Survey 2010)
  • 78% of all landlords only own a single dwelling for rent (DCLG Private Landlords Survey 2010)
  • Only 8% of landlords stated they were full time landlords (DCLG Private Landlords Survey 2010)
  • There has been an increase, from 2,445,000 households in 2005 to 3,483,000 households in 2011-2012, within the PRS (DCLG Committee – First Report The Private Rented Sector).

The result? A cottage industry of individuals supplementing their income, or funding their retirement, through an investment vehicle that they manage on a part-time and ‘best efforts’ basis. This dysfunctional approach invites near daily newspaper headlines about rogue landlords, unsuitable tenants, dilapidated premises and increasingly stringent conditions on buy-to-let lending.

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Bank of England Announces New Mortgage Affordability Test

Mark Carney, Governor of the Bank of England

Mark Carney, Governor of the Bank of England

Mark Carney, Governor  of the Bank of England (BoE), has proposed a new mortgage affordability test to curb the proportion of home loans that can be lent  at more than 4.5 times their income. The measures are being touted as an attempt to prevent dangerous levels of household debt.

A consultation paper has been published today and will be open for comments until 31 August 2014 with the final rules will come into effect on 1 October 2014.

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