Investors are keen on taking advantage of the growth in the UK property market. Investors are prepared to allocate £37,345 each, on average, to UK property, according to a landmark new study by property investment platform Brickowner.
The ONS House Price Index tracked an increase in average house prices of 7.5 per cent over the year to January 2021. This equates to an average house price in England of £267,000. The Bank of England’s Money and Credit report for January 2021 indicates that this is a release of significant pent up demand, with more to come. Mortgage approvals for house purchases (an indicator of future lending) were 99,000 in January 2021, in line with the average of 100,000 since October 2020.
Institutional investors have taken notice, especially given the resilience and reliability of returns during the pandemic. The sector rapidly adapted to lockdown conditions - with brokers, agents and lenders facilitating ongoing transactional activity - whilst, relative to many other more volatile or low return assets, the property sector has soared. Exposure to UK residential property is still relatively low, accounting for 12.9 per cent of UK institutional real estate assets and 3.0 per cent of UK PRS, so this is a significant growth vector. Especially given historically low interest rates enabling significant liquidity, and the easing of Covid-19 related restrictions on the horizon.
The IPF Size and Structure of the UK property market report has tracked institutional investor sentiment since 2012, when central concerns around management and operational intensity served as inhibitive factors. These concerns have since eased considering the availability of quality third-party management services and end-to-end property service developer operators. Moreover, the capacity to achieve significant scale has expanded with the advent of premium developments enabling large scale institutional investors to diversify portfolios through long term oriented property assets.
Key to the rising popularity of the sector has been the ongoing stability of income (aligned with inflation), the attractive return profile from a capital appreciation perspective, as well as its low correlation with other assets. Further, a supportive macroeconomic environment has been a pivotal driver of UK residential investment flows. Government policy has placed the property sector at the heart of the economy, most recently evinced in the Spring Budget extension of programmes such as the Stamp Duty Holiday as part of its longstanding “Build Build Build” strategy.
The UK Multifamily sector had a strong end to the year, with CBRE recording £955.7m of investment in Q4 2020. This brought total investment in 2020 to a record high of £3.5bn. Despite the uncertain backdrop, Multifamily has been resilient and has continued to attract a significant level of investment.