Alterations to current legislation could significantly improve the landscape for institutional investment in residential property in the UK. In response to the Montague Review launched by the government in February, the British Property Federation (BPF), the Association of Real Estate Funds (AREF) and the Investment Property Forum (IPF) have put forward some suggestions of how institutions can be encouraged to plough money into the country's residential real estate market.
The organisations are keen to promote the build-to-rent model, which they claim could generate "significant" interest from pension funds, real estate investment trusts (REITs) and insurance companies. Andrew Stanford, from the BPF, commented: "There is interest among institutional investors to invest in housing, but barriers such as scale and low net income yield remain. If we want to attract the sort of sums that will really make a difference to housing supply then we need some support via the planning system, to deliver a different rental product and support the yields that institutions seek."
Among the suggestions put forward by the BPF, AREF and IPF is a shift towards treating market-rented properties as affordable housing. This could be achieved by using S.106 agreements to introduce a covenant that states all the dwellings on a development will be rented for at least a decade from the date of their first occupation. Mr Stanford pointed out this could also benefit the government if it provided public land to be utilised for such schemes. In addition, the real estate experts stressed the need for large-scale build-to-rent projects and urged Westminster to "explicitly encourage" this type of development.
Earlier this month, housing minister Grant Shapps and economic secretary Chloe Smith launched a consultation specifically focusing on institutional investment in social housing via REITs. Mr Shapps highlighted the substantial turnover created by housing associations, which now stands at GBP 12 billion, noting the sector "should be seen as a sound and stable investment to those looking for a long-term return". Along with its push to encourage greater private property investment in social housing, the government has also stated it wants to see more variety when it comes to the provision and management of this type of accommodation.
- Wednesday 18 April 2012