Build to let: ‘just do it’

By Doug Morrison

Resi 09 delegates call for government to make build-to-let sector a reality

It is the holy grail for some in the industry but an institutionally backed private-rented sector appears as elusive as ever as residential investment generally remains the preserve of a few, passionate converts.

This was the mixed message from the conference platform of Resi 09, and the lingering fear among the 600 delegates is that the government lacks the political will to attract pension funds and insurers in large enough numbers to make a difference.

Legal & General managing director of property Bill Hughes believes something has to give. “There is a view that this is the sweet spot for an institutional involvement in residential,” he said in his keynote speech.

Legal & General is one of more than 60 groups that responded this summer to the Homes and Communities Agency’s (HCA)build-to-let plan for institutions, which could ease the chronic shortage of homes. But as HCA chief executive Sir Bob Kerslake told delegates, the initiative is moving forward on a site-by-site basis. Not that the sector is devoid of activity. Andrew Pratt, residential managing director of Grainger, the UK’s biggest private landlord, said the group has sold £110m of stock this year and has a further £60m of sales lined up.

But as Hughes declared, pension funds and insurers need attractive income returns in an era of limited capital growth. He said Legal & General is holding detailed talks with the HCA to try to create a model that generates a net return of between 5% and 6%.

And that is a big task. Investment Property Databank director Ian Cullen said income returns were last at that level in 2001. They now stand at 3% in a sector worth just £3.3bn, compared with £200bn of property owned by buy-to-let investors and the total UK housing stock of £3.8 trillion. To put the professional sector in even sharper context, the UK is bottom of IPD’s global rankings in terms of returns and as a proportion of overall property investment (see graph).

But perhaps the most salient point came in a comment from the floor. “Institutional investors should spend less time prevaricating and expecting the HCA to derisk things for them,” said the delegate. “It either works or it doesn’t. Nike comes to mind — just do it.” (Doug Morrison, Property Week) http://www.propertyweek.com/story.asp?sectioncode=530&storycode=3150256

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