Institutional investors may inject up to £2.7bn into residential property in the next three years, according to new research from the Investment Property Forum.
A survey of more than 40 organisations found a total of 28 respondents said they may invest in the residential sector in the next three years contributing between £2.6bn-£2.7bn.
The substantial majority of anticipated demand – around £2.25bn – is likely to come from the fund management sector, according to the report.
Looking at the appeal of the sector, the IPF found investors are primarily attracted to the returns profile offered by residential investment, followed by stability of income, low correlation with other asset classes, and stability of capital values.
According to its report, two-third of respondents already invest in residential property, reflecting a total investment of around £7.6bn.
The lion’s share of this exposure is to market rented and assured shorthold tenancies which account for around £3bn, or 42% of the total.
The balance is made up of student housing, ground rents, social housing, regulated tenancies and development land.
Some 14 respondents said they did not invest in the residential sector, citing the main deterrents as low income yield, lack of liquidity or insufficient market scale, reputational and political risks or, in most cases, the secotr being “just too difficult”.
The IPF also said that when respondents were asked what more the government could do to make residential more attractive or increase existing investors’ commitment to the sector, tax and planning were the two main themes mentioned.
Responses included the removal or material reduction in VAT on repairs and management fees, and the removal of section 106 planning requirements for market rented housing.
LaSalle Investment Management’s Robin Goodchild, chair of the IPF Residential Special Interest Group, said: “This survey shows that there is some institutional interest in investing in the UK residential sector which, with careful nurture by government, can deliver significant new stock.
“In this respect, I await the outcome of the Montague Review and the government’s response with great interest.”
Bridget.o’connell@estatesgazette.com
