Thursday, 28 January 2016

Here Come The Big Institutions - But What Could It Mean For The Sunderland Property Market?

You may have picked up on the news this week that Legal & General have teamed up with a Dutch pension fund manager to build 3,000 'Build to Rent' flats in what looks to be the first institutional investor entering the UK private rented sector

I don't think anyone who's been an informed observer of George Osborne's recent attacks on private landlords could be in the remotest bit surprised about this - it's been a suspicion that the long term plan was to drive out small time, individual investors and replace the vacuum with the institutions

Image result for legal & general

Click here for details from a Guardian article covering this story

And so, here's the first of what may turn out to be many Big Boys muscling in on the private rented sector with an initial 650 apartments to be built in Bristol, Salford and Walthamstow

They're doing so in order to generate yields of between 3 and 5% to pay into pension funds

The article points out that they've recently invested in new student accommodation in partnership with universities and are speaking with councils to develop affordable housing - they have plans to invest £1bn in the rented sector throughout the UK

Whilst this might look like more Bad News, even if further Institutions do come into the market should Sunderland Landlords be worried?

In a word...No

Inevitably most of the Institutions money will be focused on Greater London, with the loose change left over being allocated the likes of Manchester/Salford, Bristol etc

I doubt the likes of Sunderland, Blackburn, Lancaster etc will get much of a look-in but even if they do the number of 'Build to Rent' properties in Sunderland will be counted in the hundreds, at most

Now I may be proven wrong on the above point but even if I am all of these institutions are likely to be doing similar to L&G and building new builds, I can't see them being interested in taking on and doing a refurb on individual houses in High Barnes or Town End Farm like you or I!

So we're likely to get more apartments or 'affordable' starter homes being built, which in the case of starter homes at least is no bad thing at least

I've taken a quick look at the number of available rental properties in Sunderland today and 342 of the 876 properties to rent are apartments. That's 39%

As I've said many times before, we don't need any more apartments in Sunderland...

The fact is that Big Institutions don't get to become Big Institutions by making rash, risky decisions - they'll do their meticulous research and will only tap into a genuine need if one exists

By way of comparison to the above figure there are only 94 three bedroom properties available to rent in Sunderland at the moment, making up only 11% of the available housing stock

As the above suggests, the Sunderland housing market is broken at the moment with too many apartments and too few family homes. That's why some switched-in investors we work with hone in on a particular micro-location (not just focusing on a postcode, limiting themselves further to half a dozen core streets within that) and are then laser focused on only buying 3 bedroom houses then refurbing them to a very good standard. Guess what? They get great tenants quickly, paying good rents who tend to stay a while... 

So if the Institutions come in an build 3 bedroom properties then that may create a bit of competition, offer more choice and get things moving - it isn't necessarily a bad thing

The other consideration is that we live in a society where we are allowed to make our own choices - some people want to live close to family or work, some like new builds, some like old properties. Using myself as an example, I prefer older properties but my wife prefers new builds (so it won't surprise you to know we live in a modern property..!) 

The serious point I'm making is that 250 or so Build to Rent homes won't convince someone who's lived and grown up in Grindon decide to up sticks and move miles away from their family support network and equally it won't make someone who prefers the large rooms & high ceilings of a traditional terrace on Chatsworth Street rent a comparatively small new build semi on a brownfield site in Pallion

So I wouldn't panic. Over the next few years there will be more Institutions following L&G and coming into the UK rental market but I doubt many will venture into Sunderland. Even if they do, they may actually help fix the market just a little bit rather than heralding the impending Doom & Gloom many may be predicting!

If you'd like to have a chat about any aspect of the Sunderland property market please feel free to pop into our Frederick Street office, call me on 0191 567 8577 or email 


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