Residential Investments in International Markets
29
Nov
2014
IPF Research Highlights Paradoxes in International Investment in Residential
Against a background of low investment in residential property in the UK1 , as compared to elsewhere in Europe and the United States, research by Finance Ideas of the Netherlands, identifies some of the key drivers for institutional investment in residential property in the US and three European markets and contrasts these with the situation in the UK and Australia.
The most surprising revelation to emerge is that landlord protection has a counter-intuitive impact on investment – whilst the UK and Australia have the most landlord-friendly regimes, they also have lowest institutional investment, which contrasts strongly with those markets where tenants enjoy greater protection, such as in Germany and the Netherlands.
Principal findings
- The level of institutional investment is driven ultimately by:
- Steady income streams
- Inflation hedging
- Level of tenant protection
- Maturity of investment market
- Markets differ greatly in the availability of investment products – the Netherlands, a mature market, has no listed residential investment funds but has 30 unlisted residential funds.
- The extent of private home ownership does not appear to explain the level of institutional involvement in the sector.
- Institutional investors generally favour apartments as these are more management efficient but the nature of the physical housing stock is not a major determinant.
- The role of social housing providers varies significantly across the countries surveyed, from 1% of the total stock by value in the US to over 30% in The Netherlands, but such dominance does not crowd out institutional investment.
- Low international correlations imply large cross-border diversification potential.
Ben Sanderson, Director Fund Management at Hermes Real Estate Investment Management and chair of the IPF Project Steering Group that oversaw production of the report, commented: “This research contributes significantly to investors’ understanding of the characteristics of institutional investment in international residential markets. There are a large number of conventions and assumptions made about how and why residential investment differs around the world, which this paper successfully addresses, and there are some important lessons here for those of us involved in developing institutional investment in the UK residential market.”
Dr. Piet Eichholtz of Maastricht University, who led the Finance Ideas team, presented the findings to an audience of IPF Research Programme Sponsors and members at the London offices of Squire Patton Boggs on 4th November 2014.
Panellists Andrew Pratt of PATRIZIA AG and Michael Streicker of Sentinel Real Estate Corporation provided additional insights to the workings of different markets through their extensive experience in the sector, as well as describing some of their current activities.
Andrew Pratt commented: “The research highlighted the significant potential for UK institutions to enter the UK residential investment market at a time when demographic fundamentals support the need for large scale PRS provision throughout the UK. There is fundamentally no reason why PRS should not become a major investment asset held by Institutions in the short to medium term as it is in countries in Europe and North America.”
Michael Streicker said, “It is wonderful to see such a thoughtful approach to the development of an institutional housing industry in the UK. Having been through the formation of the multifamily business thirty years ago in the US, we are encouraged that UK real estate professionals are drawing from the global marketplace to build a business model which is comprised of the world's best ideas. It bodes well for the efficiency and sustainability of an institutional residential sector in the UK.”
Residential Investment in International Markets Seminar Presentation
1 The IPF 2014 Survey of institutional investors’ attitudes to UK residential real estate investment showed that, of the 48 respondents participating, only 6.3% of their real estate assets under management were allocated to residential property.