Moorfield has 4 BTR schemes, comprising c.1,250 homes:
London has many attractions for a BTR investor as the UK capital and a major global city with strong population growth forecast. People choose to base themselves in London because it is such a cosmopolitan city with high earning job prospects and vibrant cultural/social attractions. But it is also an expensive place to live and from an investor’s perspective it is very difficult to buy land, get planning consents and develop with very low yields accepted as the norm. There is high demand and limited supply, which perhaps justifies the low yields of c.3% that a BTR investor must accept but is that enough to make up for the risks involved?
The London residential market appears to be cooling, particularly at the prime end because of higher taxes and perhaps Brexit too, with house price forecasts now expecting greater growth outside London. The BTR market has a great opportunity to help solve the housing crisis in London because all homes that are developed are for Londoners who live and work in the city and they need to be ‘affordable’ – this means units are not sold overseas to speculators and left intentionally empty or targeted at the prime end of the market where arguable there has been over-development in recent years. BTR should therefore be encouraged in London and it is a shame that the Budget did not look to make it easier for BTR projects to come forward as that is the type of housing that London so desperately needs.
The picture outside London is different. In the cities where we have invested there has been very little development of residential since the financial crisis, because of the lack of development finance and lack of appetite to take development risk. Values are considerably lower and in many cases the required build costs do not result in either any, or enough, land value to encourage land owners to sell and the margin available to be made over build costs may not be enough. However, there is more of an even playing field with the ‘build for sale’ developers because sales values are typically comparable to BTR investment values. Indeed, until recently because of individual unit sales risks the BTR option has often been preferable. As a result there are more rental units being developed in these cities than units for sale. This may change over time as there is a shortage of both rental and owned homes and this is also resulting in high house price growth forecasts (JLL are currently forecasting 9% growth between 2018-2020 in the North West vs 3.5% for Greater London for instance and city centres will surely outperform the whole North West region).
There are very low supply levels and there is strong demand in cities such as the ones we are invested in; so rents are expected to grow and importantly investors will also receive a yield almost double that available in London. These cities have great universities that students from all over the world are keen to attend and there is both population and job growth expected. International and domestic companies are increasingly looking to locate themselves in these city centres, where they can find highly educated workforces with lower office rental costs and lower living costs for their employees too. I would also wager that Brexit will be less damaging to these cities than it might be to London.
I shouldn’t really be encouraging more people to compete with us, we were at one stage a lone voice championing investment in these cities, and more competition is not necessarily good for us. However, I would encourage a closer look at the opportunities available outside London where BTR is also contributing to solving the UK’s housing crisis and creating places to live that many aspiring renters are looking for to make their homes.