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Residential buy-to-Let

Build-to-rent property boom offering opportunities for investors

Author: Staff





Homeownership has long been a major life goal for people living in the UK, but in recent times factors such as limited housing supply and the rate of price inflation compared to wage growth have made it increasingly difficult for first-time buyers to get a foot on the property ladder.

As a result, renting has become the default option for many, and this has led to growth in the market for purpose-built developments of rental homes.

The Build to Rent sector has expanded significantly in recent years and will attract investment of £50 billion by 2020, according to real estate consultancy Knight Frank. Approximately 6.75 million households are expected to be living in rented accommodation by the end of the decade.

As well as offering choice and lifestyle benefits for renters, this trend is opening up new opportunities for investors.

New Bedford House Build to Rent Construction

The Build to Rent boom

The growth of Build to Rent has been one of the defining trends of the UK property market in recent years.

According to the first set of annual data on the sector’s growth, published by the British Property Federation (BPF) in April 2018, the total number of Build to Rent homes complete, under construction or planned in the UK has risen by 30 per cent in the past year.

At the time the report was published, there were 117,893 Build to Rent properties at various stages of the development cycle, up from 90,761 at the end of Q1 2017.

Ian Fletcher, director of real estate policy at the BPF, pointed out that the sector is “evolving quickly, with significant delivery in the regions” and a more diverse range of housing types becoming available.

Jacqui Daly, director of residential investment research and strategy at Savills, which produced the research, added: “The development pipeline is growing strongly at both ends. The number of homes completed and under construction has risen by 46 per cent in the past year alone, and the pre-planning pipeline is growing quickly.”

In a separate study published by the BPF in May this year, three-quarters (75 per cent) of MPs expressed support for build-to-rent and the contribution it is making to UK housing supply.

Some have suggested that the sector could offer a potential solution to some of the most pressing challenges in the housing market, such as undersupply and the affordability problems faced by many would-be buyers.

Moreover, it provides opportunities and many potential benefits for property investors.

Investor appeal

For buyers looking for a route into the UK property investment market, Build to Rent developments have various characteristics that could make them an attractive option.

Firstly, the Build to Rent sector typically offers lower entry level prices than other types of housing, increasing the chance of buyers making quick gains on their initial outlay if prices continue to rise. One of the ways for investors to ensure the best possible price is by securing discounts for off-plan purchases.

Furthermore, the fact that Build to Rent developments are new builds means they come with warranties in place and modern facilities that might not be available in older homes. Tenants could therefore be more prepared to pay higher rents, delivering strong yields for owners.

Another key feature of Build to Rent properties is that they tend to be cash purchases, making them an attractive option for buy-to-let investors in light of recent changes to tax relief for landlords. Restrictions on the amount of income tax relief landlords can claim from their mortgage and loan repayments are being phased in gradually. By 2021, the amount of relief buy-to-let mortgage holders will be entitled to claim will be equal to the basic rate of tax.

Infinity Waters Build to Rent investment

Renter benefits

Build to Rent homes also offer key advantages and assurances for renters, such as up-to-date amenities and high standards of build quality and property management.

These new developments often come with features such as swimming pools, gyms and concierge services. In heavily populated areas where desirable living space is in short supply, landlords will have a strong chance of finding tenants who are willing to pay for these desirable extras.

In a recent study by ZPG, which owns the Zoopla and PrimeLocation brands, the availability of the latest technology and modern features was cited as one of the key advantages of new-build properties for residential buyers. Other appealing aspects include easy maintenance, lower running costs, eco-friendliness and the attractive finish of new homes.

Aygul Zagidullina, a resident at a new-build development, told the Guardian that she had some bad experiences with private landlords before finding her current home. She said she is willing to “pay a little bit more” for a “nice lifestyle” and the services of a reliable, professional landlord in the Build to Rent sector.

Strong appeal to renters means high occupancy levels and good rental yield prospects for investors. Added to the contribution Build to Rent projects are making to housing supply in the UK, these features underline just how important the sector could prove to be for the property market in the long term.

Experience Invest’s latest Build to Rent investment opportunity offers investors strong capital growth potential as a 10% early investor discount is currently available. Follow the link for more information about Imperial Square and how the investment works.

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