Surge in Global Investment Transforms Housing Market
Residential property in the UK has proven to be a more lucrative investment compared to shops and offices in the past decade. This trend is catching the attention of institutional investors, signaling a potential shift in ownership dynamics. While commercial property faces disruption from structural trends, the stability and strong fundamentals of the UK housing market make it an attractive addition to global portfolios.
The Financial Times reports that despite the UK having approximately 5 million rental homes, the majority are owned by small buy-to-let investors, with only a few hundred thousand under institutional ownership. This differs from countries like Germany, where about a third of rental apartments are owned by professional investors, as indicated by Savills data.
Recent tax changes have diminished the appeal of small-scale letting for UK landlords, impacting housebuilders and hindering the government's target of constructing 300,000 new homes annually. Institutional investors, such as Blackstone, Carlyle, and Lloyds Banking Group-owned Citra, are entering the market, engaging in bulk deals with builders like Vistry, MJ Gleeson, and Barratt. Falling prices and investor discounts on these packages have made such deals more appealing.
Institutional investors favor residential property in the United Kingdom for its high rental demand and low volatility.
With high demand from renters, companies like Grainger, a listed build-to-let UK landlord, have reported strong performance, achieving 99% occupancy and an 8% rent growth in comparison to 2022. Residential property prices have seen a 5-7% decline since the 2022 peak, with yields now ranging between 4 and 5 percent.
Notably, there is robust demand for single-family homes, driven by higher renewal rates and lower maintenance costs compared to larger, multi-family properties. Institutional investors are responding by injecting over £1 billion into this subsector, and Savills anticipates an additional £25 billion investment by institutional investors in single-family housing in the UK over the next five to ten years.
While the influx of institutional investors may impact the dream of home ownership for young UK savers, the increase in new homes available for rent is likely to be welcomed.
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