The residential investment market has until recently been almost non-existent.
Banks and pension companies have given the build to rent sector a wide berth. Unreliable tenants, low returns on investments. It’s management intensive. It’s not dynamic. And it’s not sexy. Bottom line, it’s not something the financial institutions are interested in.
And it’s not just the big institutions.
Given the choice we prefer to own, not rent, our homes. Home ownership is proof of having made it. Being given the keys to the house is a rite of passage.
But given the economic climate that choice is no longer an option for many.
For the next generation it’s increasingly not about being able to buy your first home but being able to move out of your first home. The one you grew up in.
Renting is the new first rung on the property ladder. The prejudices associated with rental vs home ownership are beginning to dissolve.
And where the customers go the market is sure to hang its hat.
Like spring the tell tale signs are already there.
Estate agents have sharpened up their letting and management skills. Moving the letting teams from the back office to the front desk.
The shortage in new housing to rent, particularly in London and the south-east has galvanised the political parties. The political consensus? Not whether the government should invest its economic and political capital in housing for rent, but how much capital.
But what about where it really counts? Does it stack up for the big financial institutions?
When it comes to return on investment the residential market compares favourably with its commercial cousin - with inflation adjusted annual returns of 6.1% over 10 years to the end of 2011.
These figures combined with the availability of land and low interest from speculative housebuilders have created an opportunity in the market cycle for institutions to become involved in residential investment.
Perhaps one of the better kept secrets of 2013 is Grainger PLC. The UK’s biggest residential landlord own £2bn worth of housing for rent. In the year ended September 2012 Grainger’s UK portfolio increased in value by 3.9%. Grainger’s declared intention is to have a greater proportion of its activities in the rented sector - a strategy that enabled the company to increase its fee income by 45% in 2012.
It looks like one big player at least has already hung its hat.
Time for others to follow suit?
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