With the 2008 property bubble burst sufficiently in the past, the demand for housing – particularly rental – provides new means to grow income and assets.
There is increasing interest on the part of investors in housing in the UK. This is evident in statements from a multi-asset manager at Henderson Global Investors to a personal finance columnist at The Telegraph. Noting that property funds now yield about 4.5 per cent, surpassing gilts and corporate bonds, he said, “It’s a valuation story. If you look a the cost compared to the income you can get, property looks compelling.”
Portfolio managers at other multi-asset funds concur, and the Telegraph columnist (Emma Wall) notes that property can be an inflation hedge, given how rents tend to track with the price increases of other goods. Still other real asset investing advisors see growth in homebuilders and building material manufacturers, as well as lenders that specialize in buy-to-let mortgages.
As an asset class – and the property bubble burst of the past five years notwithstanding – residential property over the past three decades has been one of the best performer for investors. While this traditionally was an investment that largely benefitted individuals – small- and large-scale property investors and developers – institutional investors have historically stayed away from housing. That is, until more recently, when key economic factors including population growth and low-prices on distressed properties, came into play. Also, residential housing has generally been a capital growth strategy and less one that produces income; however, with a growing renter class that scenario has become more attractive.
All factors considered, there remain several key investment opportunities for the broad range of investors, from individuals to institutional players:
• Single property investments – While largely the province of the individual, buy-to-let has traditionally been a means for property-inclined investors who are willing to manage the physical property, leasing and such. Government programs continue to support this type of investor.
• University to-let housing – It is hard to argue with 99 per cent occupancy, as is the case in student accommodations in UK university settings. What is particularly attractive about this category is how the Higher Education Statistics Agency reports that more than 300,000 non-domicile students were at UK universities in 2012, part of a steady annual rise of about 1.5 per cent per annum.
• Funds related to housing – Real estate investment trusts (REITs) in commercial properties are part of the story, although they have performed poorly in the volatile swings of market traded securities where valuation is more a function of external (market) factors than the performance of the property itself. But those are stabilising and with the launch of the UK’s first residential REIT in early 2013 – notably focused on student housing – investors are looking at this as a new type of real asset fund.
• Strategic land – Land investment funds are typically managed by capital growth partners who are skilled in site selection, acquisition, zoning change processes and infrastructure development. They will assemble groups of investors (typically, the price of entry is £10,000 or more) who then can track the development of a single property, which is then parcelled and sold to homebuilders who construct the residences and sell them to buyers. The time frame for delivery ranges from two to five years in most scenarios.
While some investors are sceptical about the Help to Buy and Funding for Lending schemes, both in terms of effectiveness (a weak push on demand) or the opposite, creating a new real estate bubble, most concur that the fundamental factors are in line to make real estate investing a good play as part of a diversified portfolio.
“Prime real estate is finite and still very much in demand,” said one advisor-investor to The Telegraph, adding “the weakness of sterling continues to make it attractive.” But almost all investment advisors caution that an independent financial advisor should be consulted before investing in land or any other asset – the risks and rewards should be considered in relation to one’s complete financial portfolio.