Legal & General has just launched a new £600m fund to build large-scale rented accommodation – build-to-rent.
According to the Financial Times (FT) this brings the total amount of institutional investment committed to building in the private rented sector (PRS) to £1bn since the start of the year.
Paul Stanworth, managing director of L&G Capital, told the FT that the fund would seek to capitalise on continuing demand for rented homes after UK tax changes limit the amount of “buy-to-let” property that private landlords offer.
“The [UK] rental sector has so far been dominated by individuals with buy-to-let properties and there has been quite a bit of involvement from local authorities, but both of those are set to fall away,” he argued. “This will exacerbate the supply-demand imbalance.”
At the same time, institutional investors are likely to be attracted to new “build-to-rent” projects by the steady yields on offer. “The value of rents is significantly more stable than the value of house prices,” Mr Stanworth said.
According to the FT, fund portfolio managers have been attracted to the sector for a long time, since it is already well developed in countries such as the US and Germany. M&G, the asset management arm of Prudential, and Hermes Investment Management have both launched funds in the past two years.
But corporate investors have been more willing to commit this year, having detected more planning friendly signals and the tax moves against small-scale buy-to-let by George Osborne He has encouraged the investment by exempting larger corporate developments from his tax crackdown on buy-to-let.
Small-scale private landlords and their professional associations are unhappy with the situation as they feel the chancellor has given them a raw deal while favouring the corporates. Many small-scale investors have seen buy-to-let as an ideal vehicle for their pensions and see the tax changes as penalising them unfairly.
Despite the changes, some have questioned the long-term viability of the large blocks, with their more expensive professional management and their targeting of just one section of the letting market. So far the corporates occupy no more than around 2% of the letting market, so there’s a long way to go yet.
Legal & General starts new build-to-rent fund – https://t.co/cRMHRBFxnh
— LandlordZONE (@LandlordZONE) January 29, 2016