The private rented sector in the United Kingdom is booming, according to Knight Frank, a London-based multinational property consulting company. Current mortgage financing challenges, combined with a longer-term shortage of housing stock, have resulted in pent-up demand for housing that is not being met in the market. Institutional investor interest in this sector has been a hot topic for years, but it appears that the sector is about to undergo a major transformation. Buy Apartments in The Pearl | Property Hunter
According to Knight Frank's Residential Investment 2012 study, which was released today, the perceived barriers to institutional investment can be overcome, and the new REIT laws, which will take effect this summer, may be a "game-changer" in the medium term.
The study, which was also submitted as evidence to Adrian Montague's Government review of how to promote more institutional investment in privately rented assets, describes how to overcome the perceived barriers to institutional investment in the sector, such as stock, management, and returns. James Mannix, head of the firm's Residential Investment unit, also discusses a new possible model for London 'build-to-let' investment.
Knight Frank's Head of Residential Investment, James Mannix, tells World Property Channel, "The lack of an appropriate investment vehicle in the rental market in London and other major cities is a major problem for institutional investors. Most of the current stock was built with the intention of being sold: apartment buildings in the best places, where rents can be high enough to meet return thresholds, necessitate a large capital outlay, lowering yields " Our 'ideal' PRS property for fund investment will have between 500 and 2000 apartments, the majority of which will be designed for solo living with clustered floorplates; the block would also have provisions for other facilities, such as a hotel-style concierge providing a'menu' of add-ons such as laundry and room service, a basement with individual storage units, and large lifts for easy furniture movement. The majority of the units will be leased on regular ASTs, with a few short-term apartments available for commuters or pied-a-terre tenants " To make the model work, the conventional rental stock valuation method will have to be rethought - anything akin to student property appraisal could be feasible."
While the increased demand for property will keep demand high, the Knight Frank report predicts that rental growth will slow this year as tenants reach a natural 'affordability limit.' Rents, on the other hand, are expected to resume stronger growth in 2013. The study also provides a snapshot of current yields in London for investors to consider.
The introduction of a new luxury 15 percent stamp duty tax on London's high-end property market has created havoc.
The observable impact of the latest luxury property stamp duty raise on the London luxury property market, according to a written statement by London-based real estate company Douglas & Gordon, are not pleasant.
This week, Douglas & Gordon director Ed Mead told World Property Channel, "The prime central London property market has gone into meltdown less than 7 hours after the chancellor delivered the budget. I don't think it's hit anyone yet that many of the properties at this price point are purchased by a corporation for personal reasons rather than to escape stamp duty. "The majority of property companies buy for construction by companies, and they, too, are pulling out." " Several estate agents have recorded fall-throughs in London as a result of company buyers refusing to pay the ridiculous 15% tax. A few customers have attempted to offset this extra expense by lowering their purchase price by as much as 10%, resulting in vendors withdrawing from a sale. The fallout from these failures has caused widespread turmoil, with property chains breaking and transactions that had just a few days to finish falling through " Why are we slamming doors in the faces of foreign investors who have spent billions to make London what it is today? The key cause of annoyance was the avoidance of SDLT by the use of special purpose vehicles owned by foreign companies, but this budget does little to fix it, since it can still happen. Instead, a sledgehammer has been used to break a nut in the context of SDLT mitigation schemes involving UK business purchases. "Most sellers will not sell for more than £2 million because they can no longer afford to travel as supply continues to fall, driving prices higher." This drop in volume in a crucial market that is dominated exclusively from the top down may be disastrous."