"The expanding residential rental property market, particularly in London and southern England, is gaining in appeal for institutional investors."
Those are the words of Alex Jeffrey, the chief executive of Prupim, which you may not have heard of but is actually the real estate arm of one of the UK's biggest institutional investors Prudential insurance, via its asset management subsidiary M&G.
The firm has just bought 534 homes in London and the South East in a deal worth over £105 million.
The homes – a mix of flats and houses – are due to be completed in June and will be managed by Savills, the upmarket estate agent.
Institutions have been put off investing in the housing sector in the past by high costs, but the Prupim believes this is changing.
"We believe that returns from the sector – which have historically outpaced commercial real estate – will continue to be attractive as demand increases. We expect the supply and demand dynamics of the residential property market in London and the South East to remain favourable for investors, with continued strong demand for quality properties."
The UK housing market has been turned on its head by the financial crisis; a market where everyone was on a mission to buy their first home and most people could get mortgages is now a market where most first time buyers have given up on buying this side of 2020 and those who haven't are paying soaring rents trying to save at least a 5% deposit for a mortgage they won't get without immaculate credit anyway.
The shortage of housing due to lack of construction coupled with the exceptional rental demand has led to soaring rents in the last 2 years. So much so that it is becoming a real problem, much to the concern of charities like Shelter. One of the government's attempts to rectify the situation is to draw big investors into the market.
The properties purchased by Prupim have been developed by Berkeley in collaboration with the Homes and Communities Agency, the national housing and regeneration agency, under a scheme aimed at doing just that - unlike most of the government's housing policies this one seems to have worked.
According to Jeffrey the challenge of the residential rental sector for big investors has been the ability to buy enough properties and then manage the homes to a high standard.
"This deal meets both aspects of that challenge. We’re acquiring a diverse portfolio of high quality properties, while Savills contributes its considerable experience of the day-to-day management of rental homes. This is the sort of portfolio that would fit well within a fund dedicated to the rental sector," he said.
Prupim is one of the world’s 20 largest real estate fund managers. It has more than £16bn of assets under management in 740 properties, including investments in the Bluewater shopping centre and the Oxford Science Park.
- Friday 05 April 2013