Sector Focus - Build to Rent - Scot

Sector Focus: Build-to-rent

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We can tailor these policies to cover not only the standard legal ownership related risks, such as restrictions on title and reserved rights, but also more complex developerspecific interests, such as promotion and planning costs, equipment relocation, as well as items such as loss of profit or loss of rent.

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Why build-to-rent?

According to the Office for National Statistics (ONS) the number of households in the UK’s private rented sector rose by 63% between 2007 and 2017 to 4.5 million, with younger households more likely than older households to rent privately. Furthermore, the statistics reveal a decline in the number of owner occupiers.

£880bn POTENTIAL VALUE AT MATURITY

Landlords and investors are catching onto the lucrative rental market and investing heavily in build-to-rent (BTR) – which involves the construction of houses and residential developments specifically for the rental market and offering renters guaranteed tenancies of three years (with no upfront deposit or fees).

1

Berlin

2

Copenhagen

3

Paris

4

London

5

Frankfurt

‘Best European City for Build-to-rent Investment’ (JLL)

For developers that include amenities such as a rooftop terrace and garden, a residents’ lounge, fitness centre, and the bonus of being ‘pet friendly’ – it’s not hard to see the attraction of these developments for ‘generation rent’. It perfectly addresses the critical shortage of urban housing and fulfils at least the short-term needs of renters.

House prices are still relatively high compared to incomes and raising a deposit is still a monumental challenge for many house buyers. This is what has prompted generation rent and the demand for suitable rental properties.

LONDON AND NORTH WEST SHARE OF NATIONAL STOCK

78% Demand for rental homes set to increase following end of Help to Buy Scheme in 2023

Completed build-to-rent units

Sectors

Student (PBSA) Purpose-built student accommodation (PBSA) is the build-to-rent sector that initially interested investors back in 1998, and has since grown and matured. It now accommodates more than 35% of full-time students in the UK and is held predominantly by a small group of large-scale investors.

£51bn VALUE 2019

Source of investment

£600m

£600m (2018)

(2018) 31% N America 23% Europe 23% UK 23% Rest of world

E U ST U D

E

S NT

7.0%

U E ST D E N T S

35%

UK

FUL

IM

Average investment cost for student bed

IN

L-T

Full-time students living in PBSA

ÂŁ90k

Sectors

Build-to-rent (private) The lure of the build-to-rent (BTR) market for investors is clear. Demand from the public is huge with more than 10m people living in private rented accommodation. For BTR landlords – the big banks, the insurers, the pension funds, the companies - there’s a

guaranteed income at not a huge amount of effort and typically with no letting agents to consider. It’s a ‘win win’ for those with sizeable capital to invest. A particularly attractive incentive is the longer-term guarantee of potentially significant profits

At maturity

Homes in Private BTR

PO WTH TENT I RO

AL

G

1.7m households £550bn £10bn 2018

000’s 80 70 60 50 40 30 20 10

30k

37.5k 72.2k

0 homes completed

homes under construction

homes in pipeline

with big increases in equity in the property.

Real estate will undoubtedly comprise a larger proportion of investment funds for companies investing in this market.

For developers, there are serious opportunities to make a sizeable profit in

Source of investment

constructing and selling off BTR properties.

Costs associated with BTR are a critical consideration for developers and should be a key step at the early development stage of the project.

Institutional share of investment

£880m

£2.6bn

£600m one third (2018) - institutional one third - public company

2018

£382m 2015

Sectors

Retirement Currently, stock is primarily sheltered housing for social rent and owner-occupied developments by specialised housebuilders.

However, a new market is emerging due to an ageing population with housing wealth.

At maturity

Existing retirement units

POTEN

ÂŁ120bn 2018

TI

AL

G

1.7m households ÂŁ244bn W TH RO

Over 570,000 householders are over 75yrs and could afford to rent a retirement home using the rental income from their main home – avoiding stamp duty. This sector could grow by 138% over current stock.

730k

50% built / renovated in 1980s

If National Planning Practice Guidance was updated to clarify the potential confusion and inconsistencies around the C2 and C3 planning use classes, this could unlock development for further retirement stock. This, in turn, could free up family housing and reduce social care costs.

Statistics show the government can save ÂŁ1,000 - ÂŁ1,540 per year for each person that moves into retirement housing that has added care facilities.

Schemes have grown (number of homes per development)

340 units

50 units

Sectors

Care homes The Alzheimer’s Society reports that 70% of elderly care home residents have dementia and one in six people over 80 in the UK have the disease.

Care home investment

Public Health England (PHE) estimate 645,000 people in England, over 65, have dementia – of whom only two thirds have had a diagnosis.

Funds are paid by private residents (with savings over £23,250) and local authorities for those that have no funds. However, goverment funding is at a restricted rate compared to privately funded residents.

This increased pressure, (particularly where homes have a higher proportion of local authority funded residents) has been responsible for a 33% increase in care homes being forced into administration.

£1.3bn 2018

£0.7bn 2017

420k

654k

elderly population in care homes

over 65’s have dementia but only 2/3 are diagnosed

70% residents have dementia

Liana Di Ciacca

Nicola McCluskie

Head of Scotland / NI Underwriting

Senior Underwriter Scotland / NI Underwriting

LDiCiacca@firsttitle.co.uk

NMcCluskie@firsttitle.co.uk

+44 (0)141 413 8803

+44 (0)141 413 8803

Call: +44 (0)141 413 8800 Email: scotinfo@firsttitle.co.uk Visit: www.firsttitle.co.uk

Simon Hewitt

Martin Wilks

UK Head of Sales & Marketing

Head of UK Underwriting

shewitt@firsttitle.co.uk

mwilks@firsttitle.co.uk

+44 (0)207 160 8556

+44 (0)207 160 8604

Call: +44 (0)207 160 8666 Email: comm.team@firsttitle.co.uk Visit:

www.firsttitle.co.uk

The statistics and graphs contained within this document have been obtained from sources believed to be reliable.

It is the intention of this document to collate numerous sources of data relevant to the area, and by doing so, provide a comprehensive - and we hope - informative focus on the sector.

Should you have any comments, queries or feedback, please contact us at marketing@firsttitle.co.uk

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