The private rental sector goes professional

The private rental sector goes professional

With proportions of owner-occupier rates in the UK dropping from 71% in 2003 to 63% this year, the private rental sector has got some exciting times ahead of it.

Set on a small estate in Manchester’s Salford area, the red-brick homes are dubbed as build-to-rent and sit right next to their brothers and sisters that will be sold to first-time buyers, as the Financial Times reported.

The Salford homes however were never intended to be sold. Investor who put their money in the development are planning on keeping them for the long term. They harvest the rent from the homes and re-invent renting in the UK in the process.

Across all of England’s North, hundreds of family homes like these are under construction by companies such as Sigma Capital.

Most of them see the demand in those homes in the increasing difficulties families and young professionals are facing when they’re seeking to buy a new home.

This trend has the potential to change the British rental market for forever, if it continues at its current pace.

Historically, only councils and social landlords built rental homes for people on low incomes. Those who couldn’t make it into social housing had to lean on a gang of amateur landlords who either rented out their own former home or accumulated smaller portfolios of properties.

Private investors now want to professionalise the business, with rents covering all the bills and some extra maintenance.

Countryside Properties, a listed housebuilder, has already built more than 600 rental homes with another 550 expected to follow in 2017. The builder targets cities in the Northern Powerhouse where the local authorities are keen to have more housing built in their own large land banks.

Most of the rental homes are family houses and share the same neighbourhood with houses built for sale.

A three-bedroom home can be rented for £700-£890 monthly, while a four-bed is about £1,100 including all bills and insurance. Buying the same home will set you back £210,000-£225,000.

Over the last 13 years, as homes became less affordable and mortgages harder to access, the proportion of owner-occupiers dropped from 71% to 63%.

Critics, however, argue that renters will end up poorer in the long run. Housing charity, Shelter, said young adults are paying dead money to landlords. On average, house prices have increased by 7% since 1980, as figures by the ONS revealed. Renters have missed out on the capital gain that comes with it.

Graeme Hogg, chief operating officer, said Sigma was also helping councils cut housing waiting lists. “Oldham has 11,000 people on the list. Only 3,300 of those qualify for public housing. Local authorities have a real problem with amateur landlords buying homes as an investment and then not maintaining them.”

Investors realised the potential of build-to-rent development in the UK a while ago as a source of steady income on a large scale, similar to the very successful sectors in Germany and the US.

During the first half of 2016, the sector has gained some momentum: the number of properties completed, under construction or with planning permission has gone up from 21,400 to 57,000, the British Property Federation revealed in their latest figures.

About 5m households are already renting privately and an additional 1.2m is expected to join them in the near future according to Savills.

Investors, including sovereign wealth funds, pension funds and insurance companies, have already poured a total of £15bn into the sector and are forecast to give another £35bn on top of that by 2020, according to research by Knight Frank.

In Manchester alone, 28 build-to-rent developments are currently being planned, the BPF revealed.

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