RESIDENTIAL

WITH buy-to-let a busted flush across the UK, could it be that institutional investors will ride to the rescue of the housebuilders via ‘build-to-let’ schemes?

With demand likely to remain weak until both the housing and credit markets stabilise, CBRE’s residential boffins are predicting that equity-driven investors will fill some of the void by purchasing whole blocks of flats in city centres for rental.

In the latest CB Richard Ellis Hamptons Residential report, Jennet Siebrits, head of residential research at CBRE, said: “Build-to-let represents an opportunity to draw institutional investors into the sector. As large, discrete private rental blocks, they represent a product that should be attractive to professional landlords. We are encouraged that planners are recognising this opportunity. However, we are concerned that there are insufficient market-oriented solutions to generate interest.”

Currently, institutional property investors hold only around 5 per cent of all private rental stock, which creates potential for a major new source of funding for hard-pressed housebuilders.

“Institutions can provide a professional approach to property management and the financial capacity to build, buy, or hold private rental units in large blocks. These are considered key attributes for a market that often suffers from negative perceptions and needs to mature in order to grow,” said Ms Siebrits.

Jamie Doran of CBRE Scotland concurs with the idea of institutional investment into

Jamie Doran - 'institutional investors may enter the market'

letting: “Residential land transactions and individual new build unit sales have all but stagnated, resulting in an industry-wide shake up which has sadly left many facing redundancy as house builders look to cut their cost base to ride out the credit storm.

The uncertainty has also impacted on Scotland’s residential investment market, with weak demand likely to persist.

“Once more, letting is becoming a necessary alternative, due to issues of affordability, job uncertainty and people’s inability to obtain mortgages. This will have a positive impact on rental values and, as ‘real’ capital values are established, residential property yields are likely to improve.

“Institutional investors may be entrants to the market in this cycle, as small buy to let investors struggle to obtain buy to let mortgages. Developers may look at a ‘build to let’ product as a means to service the likely demand for good quality rental product from institutional investors.”