There is a desire among institutional investors to put their money into the private rented sector (PRS) in the UK, however, there are a number of hurdles that must first be overcome. This is the finding of a Knight Frank report examining residential property investment in the country. According to the organisation, only one per cent of housing stock is currently owned by institutions, despite the number of households in the PRS climbing by 75 per cent since 2001.
The study pointed out one of the biggest barriers to institutional investment in the PRS is the lack of suitable properties available. Large-scale backers want to own an entire building, thereby retaining control of all the services in a scheme and being in a position to set uniform rent levels. However, developers can achieve much higher returns by selling units individually, rather than in bulk, making it difficult for institutional players to find real estate assets that meet their requirements and enable them to enter the PRS. James Mannix, head of residential investment at Knight Frank, explained more projects that are built for the rental market will need to be put forward in order to attract institutional investors.
He suggested the majority of units in such a development would be designed for individuals or couples, while a proportion of the flats would be set aside for overnight, weekly or monthly use, which will help generate more income. In addition, facilities such as a gym, laundry and even room service can be offered at an extra cost to tenants, again boosting the potential returns. Mr Mannix stated: "This type of building will substantially increase the rental returns offered over traditional apartments."
There is some good news that may create more real estate investment opportunities for large funds, such as a reduction in the amount of stamp duty payable on purchases of multiple properties and the new measures to improve the take-up of residential real estate investment trusts due to come into force this year. Last month, the government appointed Sir Adrian Montague to carry out a review into the barriers preventing large funds from putting money into the UK's housing market. Chief executive of the British Property Federation Liz Peace described the exercise as "a golden opportunity to articulate why residential investment could be an attractive asset class for institutions and what prevents the considerable interest in the sector turning into a greater flow of funds into it". The findings of the review are expected to be presented to ministers this June.
- Monday 02 April 2012