Asset managers, pension fund managers and insurers are among those looking to invest in the rental sector as a healthy source of income. According to a Financial Times report, they are planning to invest nearly £50 billion in building new rental homes in the UK in the next five years. The size of institutional investments in this build-to-rent sector is forecast to grow from £25 billion last year to around £70 billion in 2020, according to a report by property agency Knight Frank. It also forecasts that an estimated 6.75 million households will be living in rented accommodation by the end of the decade.
Knight Frank’s head of residential capital markets, James Mannix, said there was a lot of money going into the UK build-to-rent sector. He added that many investors are looking for assets which will give them a secure income long term. The security of rental income in London and other big cities is a major attraction for investors too. Many big investors are also looking to capitalise on the rise of Generation Rent, or millennials, who will always rent rather than buy. Demand for rental properties will continue to grow, because more people are being priced out of the property market. Others simply like the flexibility of renting.
Build-to-rent has becoming an alternative investment to the traditional build-to-sell sector. It is an interesting concept, because traditionally, developers were building houses to make a profit, with the responsibility for repair and maintenance being down to the house buyer. The build-to-rent model means the landlords, developers and their investors have a vested interest in the long-term future of their schemes. This means more thought will go into the design, sustainability and energy-efficiency of their projects. There are various ways to invest in the build-to-let sector, either by striking up a partnership with the house builders and developers or through managed funds.
Rather than property being seen as an asset or product, it is being seen as a service, with the occupiers being called customers rather than tenants. As well as providing people with a space to live, many of these buildings also have extras such as high-speed internet, laundry services, cleaners, gyms or shared spaces, such as gardens or a bar.
The good news for investors is that fully-serviced build-to-rents are proving popular, with 50% of new build-to-rent landlords finding their first tenant within two months. They like the services on offer, as well as the fact that all bills, including rent, utilities and internet, are all included in one monthly payment. Also, many build-to-rent investors are offering three-year tenancies for new developments. This pledge was first mooted by the British Property Federation to meet the needs of tenants, particularly families, who wanted the security of a longer let.
British Property Federation research shows 10,244 build-to-rent homes are under construction in UK regions and 6,262 in London. The increase in purpose-built, professionally-managed rental homes is particularly strong in Manchester and Salford, in the north of England.
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