Berkeley and Barratt Developments are considering selling entire blocks of their London developments to the institutional rental market.
Barratt is offering early phases from its Meridian Water scheme in Enfield and its Nestlé factory site in Hayes to PRS investors. Around 160 units are available in Enfield and an unspecified number in Hayes.
Berkeley, London’s largest luxury housebuilder, is at an earlier stage, but institutional investors have been eyeing unbuilt blocks where pre-sales are yet to start.
[caption id="attachment_804116" align="alignnone" width="570"] Barratt’s Meridian Water scheme, Enfield[/caption]
Berkeley and Barratt Developments are considering selling entire blocks of their London developments to the institutional rental market.
Barratt is offering early phases from its Meridian Water scheme in Enfield and its Nestlé factory site in Hayes to PRS investors. Around 160 units are available in Enfield and an unspecified number in Hayes.
Berkeley, London’s largest luxury housebuilder, is at an earlier stage, but institutional investors have been eyeing unbuilt blocks where pre-sales are yet to start.
Phases at Woolwich Arsenal, the Old Kent Road, Kidbrooke Village and Woodberry Down all have such units.
Early-stage investment from rental investors helps de-risk schemes, accelerate delivery and can lift sales values for later phases. By being sold into long-term rental ownership, the units also do not compete with units for sale.
Housing market analyst Neal Hudson said there was a gap between buyer and seller expectations, with housebuilders wanting a minimal discount, but rental operators often wanting more than 30%.
“It comes down to the fact that the price at which a developer can sell to owner-occupiers is still far higher than the price determined by the yield required by investors for the scheme to work – and that disconnect creates a price gap that one or the other has to address,” he said.
Both developers have experience of offering units to the institutional rental market.
Berkeley was one of the first housebuilders to sell to an institution, with a portfolio sale of 534 units to M&G in 2013.
In March last year, Barratt put up for sale a London portfolio of around 300 homes, in various stages of construction, across four of its schemes. It is now under offer to Greystar.
This is, however, the first time Barratt has considered selling entire early phases.
In a trading statement before Christmas, Berkeley attributed slowing London sales to the referendum result and stamp duty changes. It reported a 20% decline in reservations over the six months to December compared with the year before, and a 9% fall in forward sales on the preceding half year.
Despite this, chairman Tony Pidgley said the group was still on track for “a new five-year target to deliver at least £3bn of profit before tax in the five years beginning 1 May 2016”.
JLL predicts central London development house prices will increase by just 1% over the next two years. It expects Greater London house prices to increase by 3%.
Faisal Durrani, head of research at Cluttons, said inner London’s housing market had been stalled for well over a year, with values dropping for six consecutive quarters.
“Stubborn affordability issues and the looming fallout from impending Brexit negotiations are likely to hamper any quick turn around,” he said.
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