UK Budget 2011, news analysis: No place like home

The UK Budget announced today appears to aide those institutions looking to build large-scale rented residential portfolios.

News emerged today that the UK government is to make it easier for property investors to assemble large-scale residential rented portfolios.
The UK government announced in the Budget 2011 that it will allow the disaggregation of stamp duty on bulk residential purchases. In other words, tax could be paid on the average, rather than total price, of an individual residential asset in a portfolio, subject to a minimum rate of 1 per cent. This should mean a reduction in tax compared to the 4 per cent current charge on the total value of a portfolio.

The body that represents the property industry in the UK has initially reacted with surprise and delight. Liz Peace, chief executive of the British Property Federation, said it was something very welcome and also something that the BPF had been lobbying over for a long time. “We believe this will be hugely helpful for encouraging institutional investment into the private rented sector,” she said.

The move will be even more welcome, of course, to those looking to enter the sector and grow into it in a meaningful way.

Though in England there is the maxim that “an Englishman’s home is his castle”, meaning Brits should be allowed to do whatever they like in their own homes, it has not been the same for institutions wishing to invest in them, becasue of the various impediments.  

Yet with this relaxation of tax attached to bulk purchases, it could add extra stimulus to those with current plans to enter the sector.

Even before this new tax development, the asset class was beginning to gain attention in Britain. Institutional real estate fund managers such as Aviva Investors, LaSalle Investment Management and insurer Aegon were earlier last year each on the road trying to raise up to £500 million-plus (€600 million; $728 million) for funds, which, with leverage, they hoped could lead to £1 billion rental accommodation portfolios.

The firms were buoyed by the efforts of the last UK government (a Labour one) to encourage institutional investors to invest in the private rental residential sector. As it sought to tackle the UK’s lack of new affordable homes, the Labour government introduced in 2009 the Private Rental Sector Initiative (PRSI). By releasing land to build on, the initiative was launched to attract UK pension schemes and overseas capital to invest – in scale – in the tenanted homes sector. When launched, 64 expressions of interest were made.

Here’s what the a group made up of the Property Industry Alliance, Council of Mortgage Lenders and Association of Real Estate Funds said at the time:  “The residential sector may be the largest asset class in the UK, but for most institutional investors it remains effectively a new asset class. Investors will only be attracted to a new asset class if they can make material investment in the sector.”

With changes to the way bulk purchases are taxed, maybe now they can.

Not only that, but there was also good news today in the Budget for those interested in listing a REIT in the UK with the relaxation of certain elements of doing so.

Both these things make the UK budget at first sight a welcome one.


The BPF's Peace said: “This is a budget that the property industry will want to get behind. It has a general thread that is supportive of enterprise and a number of issues on which our industry can genuinely feel it is being supported.”

She added: “We are particularly pleased that the government has been willing to engage on issues such as planning reform, REITS and the stamp duty bulk purchase rules. The government has listened to ours’ and others’ representations and you cannot ask for much more than that.”