UK encourages investors into residential property

Britain’s Homes and Communities Agency has launched an initiative which could potentially attract significant investment into the housing market by encouraging institutions to fund new homes specifically for private renting.

The UK’s Homes and Communities Agency formed last year to deliver affordable housing and regeneration in England, wants to encourage pension funds and other financial institutions to invest large-scale in the residential sector.

To do so, the agency has created the Private Rented Sector Initiative (PRSI), noting at the moment there is strong investor appetite for low risk investment focused on income distribution and a “longer-term investment horizon”. It said: “Many believe that this is the perfect time to expand the private rented sector.”

The Homes and Communities Agency wants to work with financial institutions and other investors to develop a long-term funding model for new private rental housing in England. It is anticipated that the potential investment could come from sources such as pension funds or overseas investors which have not traditionally been involved in UK residential letting.

It hopes news investment would kick-start stalled residential schemes and lead to a significant increase in high quality new homes for rent.

Under the initiative, the agency would facilitate the building of new homes for rent, but with the potential to consider recently built homes as “seed assets”.

John Knowles, managing director, at DTZ Corporate Finance, whose firm is advising the agency, said in a statement that residential property investment had historically been a challenge for institutional investors as it was difficult to find large volume. The sector also tended to suffer from low running yields, he said. However, he added that given the current market, the dearth in mortgage availability, and the lack of quality stock, “sufficiently attractive stock” offering high net yields could now be achieved from rental streams without reliance on capital growth to make up total returns.”