British Land's residential ambitions
has made its first major foray into residential property by buying Wardrobe Court - a small 18th century square of serviced apartments nestled between St Paul’s Cathedral and the River Thames. Historically, the UK commercial property industry has largely shunned housing because net rental yields are low, it's hard to buy in bulk and requires intensive management. But is this move by Britain’s second-largest listed property group a turning point?
The rationale for the deal is the sunny outlook for prime London rents. British Land thinks it will be able to re-let the apartments “at a significantly higher rent” when the current lease to serviced apartment operator BridgeStreet expires in 2014. But the announcement also explicitly says the group might sell the flats as private homes. So British Land is not committed to building a residential portfolio per se.
The same goes for
London & Stamford
, a ‘vulture’ fund launched during the property crash that has bought flats in Arsenal and Battersea. Founder and industry veteran Patrick Vaughan, who sees strong rental growth ahead, wants to expand the company's residential portfolio further. “We’re catering to people who can’t save a 25 per cent deposit to buy. There’s a real sweet spot there - we have an orderly queue of quality customers,” he enthuses. But the company has an even more opportunistic approach to property ownership than British Land. The temptation will be to sell them to emotionally-attached occupiers when the mortgage market recovers - although this could be years away.
But the kind of financial institutions who own vast swathes of housing on the continent - pension funds and insurance groups - have been slow to react to the rental boom. They have long talked of launching residential funds on the basis that housing has outperformed commercial property by some margin historically. And the government - which pushed institutions out of housing in the 1960s by regulating tenancies - is keen to attract their capital back in order to stimulate house-building. It even reformed stamp duty in favour of bulk purchases in the last Budget.
But the only institutional investor to have announced firm plans is
, which is reportedly working with housebuilder Telford Homes on a 'build-to-let' portfolio. Aegon Asset Management tried to create a fund last year using the existing residential portfolio of Aim-listed supermarket developer
. But it failed to stir up sufficient interest among pension funds and the project was eventually scrapped. The era of institutional home-ownership in the UK is still far in the future.
By Stephen Wilmot,
06 July 2011