Would you bet on build to rent (BTR)? As the industry watches many buy-to-let (BTL) landlords leave the market when faced with costly renovation bills to meet new Energy Performance Certificate standards, on top of a demanding tax regime, there appears to be a growing need for this booming sector.
With rising tenant numbers and dwindling supply, BTR could be the saving grace to plug this gap in the market, boosting supply and keeping a handle on runaway rental prices for tenants.
According to the National Residential Landlords Association, 56% of private landlords reported a rise in demand for rented homes in Q4 2021. For London, this figure jumps to 74%. Recent analysis by Knight Frank reported that more than half a million extra households will be renting by 2023.
Meanwhile, 24% of landlords say they plan to reduce the number of properties they let. It’s no surprise, then, that Capital Economics has warned that the supply of rental stock could fall by more than half a million over the next 10 years.
There is a clear and very real need for new housing, so with 42,119 homes under construction and another 99,273 in the planning pipeline this year (BPF), BTR will undoubtedly help meet this growing demand.
Now really is the time to invest. This is a sector that supports the younger generation, who are unable to save for a house deposit as prices get further out of reach and are looking for alternatives that don’t compromise their existing lifestyle.
Years of low interest rates, which have driven down the returns available from government and corporate bonds, have made investors desperate for the type of long-term income that BTR can provide. More volatile stock markets require much steadier nerves, whereas betting on property is quite literally as safe as houses.
Choosing new-build also requires little thought or effort. By 2025, some older properties will be both unrentable and unsellable against new energy criteria. This has already seen half of properties bought by landlords this year come with an EPC rating of between ‘A’ and ‘C’, the highest figure ever recorded according to Hamptons.
While already refurbished properties often come with a price premium, developers can offer large discounts when multiple new-builds are bought at one time.
The build-to-sell (BTS) model is ideal for BTL, whereas BTR is attracting larger institutional investors and pension funds, as well as investment from smaller investor groups. As an asset class, BTR needs very little of the investor’s attention where aspects such as renewable energy, responsive technology and on-site management can be built-in, making it a resilient and profitable prospect.
So, where to start?
First, investors should identify a BTR scheme that resonates with its existing community. A great rule of thumb is to focus on schemes that chime with the 15-minute city concept, with transport facilities and everyday essentials all within a one-mile radius. Some BTR developers are building in locations where there are very few new-build rentals, being first to market and making it a new and exciting proposition for older but accessible towns.
Second, seek out a professionally managed building from an experienced end-to-end provider for an integrated solution with a high level of asset management and customer service built-in. From leasing and referencing to block management, find a provider who can do it all. This will ensure tenant retention that contributes positively to the financial performance of the scheme.
Third, choose a development with technology-focused infrastructure to capture data patterns, from smart security and intelligent temperature control to bluetooth-activated access. This can help feed into an intelligent map of demographics, mobility and space analysis for a more agile, future-proof scheme.
Finally, whereas traditionally the unique selling point for BTR had always been its facilities, from on-site gyms to resident bars, there are a growing number of users who feel disenchanted by the high premiums that come with them. Investors should seek developments that offer tenants more choice.
Strawberry Star’s ‘Star Living’ BTR schemes across the South East will provide modern convenience but won’t ask tenants to pay for on-site luxuries that they might not use. This concept works well for investors too, where developers can carve out more flats from the same amount of space, increasing their margins and long-term rental yields.
What does the future hold for BTR? Urban living is making a huge post-pandemic comeback, and it’s new-build developments that have the unique potential to create thriving, modern communities through innovative technology and strong estate management.
BTR now accounts for 40% of all new housing in London and is predicted to triple in size by 2024 as the sector matures. It’s clear BTR has an incredibly important role to play in our evolving housing market.
Santhosh Gowda is chairman of global residential and commercial investment property specialist Strawberry Star