Tony Ward is chief executive of Clayton Euro Risk
This week’s flavour seems to be that of the opportunities presented by the private rental sector (PRS).
London housebuilder Telford Homes said that a quarter of the properties it sold over the past year had been bought by institutional investors that rent out the space. An increasing number of big players, it seems, are taking an interest in the PRS. According to the housebuilder, its first big foray into the PRS had delivered exceptional capital returns for the company and marked the start of a new direction. AIM-listed Telford has sold two complete developments for rent: last week, Carmen Street in Bow, East London, to M&G Real Estates for £69.3m and in February, Pavilions in North London to the L&Q housing association for £66.8m.
Chief executive Jon Di-Stefano said that PRS could become a ‘permanent and more significant’ part of Telford’s business. “Over the last 12 months it has become clear that there is now effective institutional demand for high quality, well located developments to be ‘built for rent’,” Mr Di-Stefano said. “PRS sales not only balance risk in the development pipeline and significantly improve return on capital, needing no debt and little equity, but also bring forward profit recognition, albeit at a moderately reduced margin. The sales to L&Q and M&G are just the start.” He added that because the company is focused on non-prime locations in London, it has not been affected by the slowdown in the luxury London property market.
“There is an ongoing housing crisis and a clear imbalance between the supply of homes and the needs of a growing population,” he said. “Telford Homes is building homes for Londoners in a market where demand continues to significantly outstrip supply, and the board believes that this undeniable structural factor will underpin the group’s future growth.” Telford had forward-sold homes worth £579m as of 1 April, up from £503m at the same point last year, and has already secured more than 50% of the total revenue it expects to generate in the next three financial years.
A wise strategy, indeed. Over the past decade, London’s economy has grown twice as fast as Britain’s and its population 50% faster. There is no doubt that London is in need of decent, affordable homes to rent as buying for most people – especially Generation Y – remains an impossible dream with the typical price paid for a house in Greater London inching past the £600,000 milestone for the first time.
It’s also a profitable move for the developers.