Institutions poised to invest in housing

Copyright: David Lawson Property Week 1997

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Institutions are confident the residential investment market will grow over the next few years and several are moving into the sector, according to an exclusive survey by Property Week and the British Property Federation.   Current investment is still only a tiny portion of overall assets. Pension funds and insurance companies with a total property portfolio of more than 50bn pounds who replied to the survey have only 125m pounds in housing.

  But several say they are planning to increase this stake and two more are set to join the market in the next couple of years. Initial investments are likely to range from 5m pounds to 28m pounds.  The important factor is that twothirds of institutions believe the market will grow. 'This is a very significant change from a few years ago,' said Trevor Moross, past president of the BPF and a leading residential investor himself through Dorrington Investment.

 He admits that funds are still showing uncertainty, with a significant number simply stating  that they simply did not know whether they would move into housing in the near future. But that was better than outright rejection. 'It is a slow process. But our experience is that funds are interested,' he said. 'They are spending time analysing a range of potential investment vehicles. Above all else they need to see research, as it is evidence of running yields that will satisfy their investment criteria.'

  More than 20 institutions responded to the survey, including ten insurance companies, eight pension funds and three combines funds. Three private property companies, one listed business, a charity and an overseas buyer also contributed.  One point that stood out among institutions is that indirect investment vehicles  will be essential to expand investment. Half the insurance companies says they would be encouraged to move in via housing investment trusts (HITs).

 'Funds will not go into this market alone or directly,' said Moross. But he is disappointed that there is still no concrete news that one of these longawaited vehicles has begun to move. Dorrington's own scheme was at too critical a stage to comment on.  It was ironic that while institutions contemplate, the residential market continues to perform well. Nimble private investors would take full advantage of the strong demand from tenants. But this could be satisfied in the long term only by wellfunded corporate landlords providing quality accommodation right across the price spectrum.

  There was still a chance for institutions to move in, as the sector  is still below its longterm growth trend. 'The market historically rises well above trend before correcting,' he said.

   The survey shows overwhelming confidence that Labour's move into government would not interfere with the residential market a big change from the endemic uncertainty before the election, says Moross. Labour policy is to encourage the rented sector with large companies investing longterm funds.

 But he warned that if nothing emerged from the current round of planned investment products, there would need to be a hard rethink about the way HITs are structured and the tax incentives for landlords.