Property has long been a popular investment for many individuals, and it’s easy to see why; careful investment in the right place can create solid financial returns, generating high levels of income through rental yields and capital growth. This is especially the case in the UK, where an undersupply of housing in many areas has led to rapidly rising house prices and increasing rental revenues. Big institutional investors have often thought differently; traditionally, they have been wary of the property market, viewing it as a risky endeavour to rely on rents. However, in the US large institutions now own an increasing share of the real estate market, and it looks as though change is on the way. Could the UK be heading in the same direction?
Lloyds Bank this month released its plans to enter the property market with the launch of its new brand, Citra Living, who aim to “work with leading housebuilders through strategic partnerships to identify sites and support the building of additional housing”, starting off with 400 houses by the end of 2021 - but this housing will be available to rent only. Build to rent is one of the biggest investment trends in the property market at the moment, and it has been estimated that there was a 22% increase in build to rent properties in the UK over the past four years alone. But that’s not all that Lloyds has in store - it was also revealed that the bank plans to expand so rapidly that it will buy 50,000 homes in the next ten years. This far exceeds the number of properties held by the present market leader, Grainger, who currently have just under 10,000 properties and a market capitalisation of £2.1bn.
And Lloyds Bank is not the only institution trying to get in on the action. There are already some big name fund management and insurance groups investing in the property market - Legal & General and M&G to name but two - but this is a first for a high street bank. John Lewis is also diversifying into property, with plans to create a further 10,000 homes for rent, some of which will be converted from unused retail space.
The decision by Lloyds to enter the property market has not been without controversy. Whilst it is more usual for build to rent properties, especially those built in partnership with institutional investors, never to come on the open market, Citra has courted criticism by purchasing its first homes in Fletton Quays, Peterborough. These 358 apartments, situated on the River Nene and only a few minutes’ drive from Peterborough Railway Station, were openly marketed for sale. Of these, Citra Living purchased 45 - a considerable proportion of the total. But rises in house prices, especially in popular areas such as South East England, mean that homebuyers are increasingly being priced out of the market, even before facing competition from institutions. Of course, this also means that there is likely to be increased competition for individual investors as institutions take a greater share of the market - a move that has been linked to higher price uncertainty in the short term in the US.
Critics argue that what is needed in the UK is more affordable housing for low-income families, and starter homes enabling first-time buyers to get on the housing ladder, rather than yet more rental properties. This argument is countered by institutional investors, who claim that they are simply fulfilling the need for rental properties, a demand which has grown in the UK thanks to the departure of many private landlords from the sector following new rules and tax regulations in recent years. Andy Hutchinson, the Managing Director of Citra Living, stated that “We want to ensure everyone has access to stable and affordable homes... Through Citra Living we want to ensure more people have access to good quality, affordable, new build rental properties.” It seems likely that any future developments will be built with Barrett Homes, with whom they announced a strategic partnership in August. It looks as though, at least for the meantime, the institutional investors are here to stay.