Residential investment yields benchmarked

Copyright: David Lawson – appeared Property Week April 1999

Home Page

A  final piece in the complex jigsaw of information required to draw big funds into residential investment is being put into place with the first comprehensive benchmarking of yields.

   Ten leading property companies are about to receive detailed performance figures for millions of pounds worth of housing assets. By next year, housing should have a measure similar to the Investment Property Databank index, which has become the bedrock for investment in the commercial sector.

  The Centre for Interfirm Comparison, which specialises in creating benchmark performance indicators for clients as wide ranging as surveyors and the water industry, is working on a pilot study of yields. This involves only part of the property owned by the participating companies for the first half of 1998. 'But these are early days,' says Interfirm director Harry Palmer .

  As more data becomes available, it will be fed into the system. Other landlords could also become involved. Initially, the information will be for internal use, showing each firm how it is performing to a benchmark. But this will lead to a new index for the whole sector by the end of next year.

  IPD is already creating a residential index, but this tends to concentrate on London. Interfirm intends to cover the whole country by drawing on such a wide range of companies, including names like Dorrington and Leaders. IPD also includes ground rents, which Interfirm will ignore. This will please many fund managers, who feel they are not compatible with mainstream lettings.

  Joseph Rowntree publishes quarterly yield figures but overlays these on  the Halifax and Nationwide price indices. Some funds  feel this reflects buyers' motives rather than those of investors.

 'The Interfirm index will be breakthrough for institutions who keep complaining about a lack of research into yields, but it  will complement rather than replace the other measures,' says Nick Jopling, director of Allsop Residential Investment and Management Group.

    Interfirm has not found it easy to create uniform measures for benchmarking. It discovered  big variations in how firms accounted for factors such as  gross and net margins, arrears and voids. But it has cut through the confusion, producing almost 100 common ratios. These will not only enable detailed benchmarking but lead to  a uniform performance index.