Many financial institutions are going to invest billions in rental homes and it is expected that this will cause a major expansion in the rental sector in the United Kingdom. Historically, banks and other financial institutions, have avoided getting involved in accommodation provision as they have always worried that the returns are not high and the management of such properties is very challenging.
Interest rates are at a very low level and financial systems worldwide are stretched to a dangerous level. Equities are also in a bad state and this is making the property sector a more attractive option for financial investors.
Figures have recently been released by the revenue service which shows that financial institutions have put over £2 billion into apartments and homes in the UK last year. This is a significant increase on the previous year’s figures which were around £750 million.
Wedlake Bell, the city law firm, has a residential property team which is headed by Jeremy Raj. Mr Raj stated, “Financial institutions are coming to invest significantly more in residential property and this is clearly because the demand for such properties is very high and there is a significant shortage of them on the market.
It also seems as if this demand will not go away in the future, making it an appealing investment opportunity. What will be interesting to see is whether this trend the purchasing property continues over the next 12 months.”
The average rent in the United Kingdom is over £700 a month and in the south-east of the country there is a significant shortage of homes which is unlikely to be relieved in the near future. Mr Raj continues, “The credit crunch has meant that fewer houses are being constructed but the demand for new homes has hardly decreased. Unsold houses that were constructed before the credit crisis are now almost all sold leaving the market with a significant shortage.”
Barclays Capital have recently teamed up with UK Regeneration and together they are planning to build over 20,000 homes in Britain by the year 2020. Government incentives have also made homebuilding an attractive option for investors and they have launched a scheme where builders can build properties today and pay costs later.
The breaks from stamp duty have also made institutional investment in property more appealing. Before the breaks were implemented in 2011, if an investor purchased more than one property they would be penalised more than if they had bought a single location. Some financial institutions have suggested that the government should implement tax breaks for those investing in real estate, such as those that are available for commercial property.
Savills have recently released research which suggests that by 2016 ,20 percent of all homes in Britain could be in the rental sector. The research commented, “Since the credit crunch the demand for rented accommodation has increased significantly and this has provided a good investment opportunity for financial institutions. The amount of investment available is particularly high because in recent years there has been less activity in people who are buying to let.
“It is clear from recent activity that the investment sector is moving on this investment opportunity but it is still not financial institutions who are leading the way. Geared investors are struggling, particularly to find a sustainable model in the industry.”