"London could become a property investor battleground"
London buy to let landlords may soon have to fight toe-to-toe with institutional investors for prime residential property.
Soaring rents and a shift from owning a home to renting a home for younger adults is triggering fresh interest in residential investment from pension funds and property companies ready to pour millions into housing in the capital.
A key indicator is a rekindling of interest in letting homes from British Land. The firm stepped out of the residential market in 2006, just before the property bubble burst.
Decreasing investment risk by partnering-in building houses with developers and the government, as well as rising rents, is making many institutions look again at putting money into homes.
The residential investment market has reversed from get-rich-quick aspirations based on soaring house prices to a more long-term view based on stable yields. The strategy is buy to rent, not buy to sell.
The residential property business model outside the UK has always favoured corporate rather than personal investors.
Successive governments have tried to spark institutional investment interest with REIT trusts without much response, but the hope is now that a changing market is making residential property investment more attractive for big funds.
The target is residential property within the M25 – the motorway effectively places a ring of confidence around the capital that is encouraging investors.
House price surveys, rental returns and professional opinion from august bodies like the Royal Institution of Chartered Surveyors all indicate a widening gulf between the London property market and that of the rest of the UK.
London & Stamford extended the firm’s residential portfolio to around £150 million with the recent acquisition of more than 100 homes in Islington, North London, for £50 million. The deal is reckoned to return a yield of 5.3% climbing to around 10% over three years on a purchase that was 20% below market value.
Chairman Raymond Mould said: “We can see strong rental growth in the Central London residential market not only due to the constrained development of new build but also because first time buyers continue to be kept out of the market by the need for higher mortgage deposits than was historically the case.”