Tag Archives: housing
London’s Forced Renters Fuel Apartment Investing Boom
By Neil Callanan, Patrick Gower and Chris Spillane June 11, 2013 (Corrects spelling of Grainger director’s name in third and ninth paragraphs of story published yesterday.) Londoners are increasingly becoming renters whether they like it or not after the U.K. capital’s average home price passed 500,000 pounds ($778,000) last month. With first-time buyers having to borrow more than ever and save longer to afford a down payment, leasing demand is set to soar, and developers and investors are building like never before. The Greater London Authority estimates households renting privately owned apartments or single-family homes will increase to 37 percent by 2025 from 25 percent last year. “It’s one of the most exciting, if not the most exciting asset class in the market today,” said Nick Jopling, executive director of Grainger Plc (GRI), the U.K.’s largest publicly traded residential landlord. “Institutions are recognizing that too.” Investors including Grainger, Dutch pension-fund asset manager APG and developer Quintain Estates & Developments Plc are already seeking to profit while others, such as New York-based private-equity firm KKR & Co., have said they’re considering entering the London market. Savills Plc (SVS) estimates at least 210,000 more U.K. households will seek to rent in the next three years, most in the capital. Multifamily home buyers got total returns of 8.9 percent in the U.K. last year, compared with 2.7 percent for commercial real estate, according to Investment Property Databank Ltd. They’re also set to benefit from measures introduced by Prime Minister David Cameron’s government aimed at stoking construction and reviving the economy. The government’s March budget announcement included 1 billion pounds of incentives aimed at spurring multifamily residential development and easing a housing shortage. ‘Innovative Models’ “These projects represent a wide range of innovative models and will provide a good spread across England, with around one quarter in London,” Housing and Local Government Minister Mark Prisk said in April A month after the incentives were introduced, about 700 million pounds had been allocated to 45 projects around the U.K. The developments could produce as many as 10,000 homes, the government estimates. “Those are the seed assets that we will see in future years acquired by institutional money once they’re built, leased up and tenants are paying their rent,” Grainger’s Jopling said in a telephone interview. Cultural Shift The shift toward companies and investors owning swaths of rental housing is as much cultural as it is economic. Like the rest of Britain, home ownership in London is engrained in the culture. Moving up the so-called housing ladder and renting out an apartment once a new home is acquired, or investing in a few buy-to-let properties, has become a cottage industry. That’s different than places like the U.S. and Germany where homeownership rates are lower and companies own thousands of rental apartments. About 70 percent of Britons own their own home compared with 53 percent in Germany, data compiled by LBS Research shows. In the U.S., the figure is 65 percent. To rent a home to Londoners unable or unwilling to buy one, multifamily investors are focusing on neighborhoods with access to transportation links like the London Underground, such as Paddington as well as Balham and Putney, which are in the south and southwest of the city, according to Adam Challis, head of residential research at broker Jones Lang LaSalle Inc. (JLL) “It’s all about orientating the asset around the demand profile of future occupiers,” Challis said. “Renters typically are going to be young professionals, car free, and as a result transport access is going to be a hallmark of the successful locations.” Underground Zones The Underground’s zones 2 and 3, which ring the city center, were the country’s best-performing areas for renting houses and apartments last year with returns of 10.7 percent, researcher IPD said in February. The average rent in greater London climbed to 1,236 pounds in April, up 4.8 percent from a year earlier, according to an index compiled by HomeLet, the U.K.’s largest referencing and rentals insurance company Quintain, a London-based developer, decided it will rent out about 100 apartments in building projects in the Greenwich area and another 100 in the city’s Wembley neighborhood, rather than sell as they had typically done, because of increased demand. “It’s the new phenomenon of this year,” Quintain Chief Executive Officer Max James said by telephone. “There is a growing institutional demand for this kind of product, so you begin to see this triangle where developers, tenants and institutions are all coming together in the same space.” APG’s Acquisition APG, Europe’s largest pension-fund asset manager with 325 billion euros ($430 billion) under management, teamed with Newcastle, England-based Grainger to buy about 1,200 U.K. homes for about 350 million pounds in January. The trust set up to buy the assets will focus on renting out properties in greater London and may also invest in developing homes for leasing. Prudential Plc (PRU)’s M&G Investments last month bought 534 homes through a unit for 105.4 million pounds from Berkeley Group Holdings Plc (BKG). Berkeley, the U.K.’s third-largest homebuilder by market value, is keeping an undisclosed minority stake after the project is done. It also may develop homes to rent, according to a statement at the time. A unit of Qatar’s sovereign-wealth fund has also been buying and selling in the London multifamily market. Qatari Diar Real Estate Investment Co. and Delancey Estates Plc paid about 557 million pounds for the 2012 London Olympics athlete’s village in a deal that included about 1,400 homes, most of which will be leased rather than sold, according to an August 2011 statement. LondonMetric Property Plc (LMP) was part of a venture that bought a luxury multifamily complex in the affluent Chelsea neighborhood from Qatari Diar last June for 147 million pounds. ‘Ludicrous’ Yields Not every company is enthusiastic about U.K. multifamily residential assets. Axa Real Estate Investment Managers, Europe’s largest property manager, prefers to put its money into housing for students and seniors, Chief Executive Officer Pierre Vaquier said in a March interview. Pension funds, asset managers and insurers are less likely to buy multifamily property in London’s best residential areas because rents aren’t high enough compared with purchase prices, according to Jones Lang’s Challis. “The yield can seem fairly ludicrous in comparison to traditional property investment,” he said. London home asking prices increased 3.3 percent to a record 509,870 pounds in May, property-website operator Rightmove said in a report last month. The price of London homes is now more than nine times the average earnings of residents and buyers typically need a deposit of 59,000 pounds, according to a report by Savills. Rising Rents The typical first-time London buyer borrowed 3.6 times their household income last year for the purchase, the most ever, according to data compiled by the Council of Mortgage Lenders going back to 1974. Rents in the city were about 7.6 percent higher in April than a year earlier, the biggest gain in the U.K., LSL Property Services Ltd. said last month. The London Assembly, a group of elected officials tasked with scrutinizing the Mayor, published a report today urging Boris Johnson to seek a change in U.K. law that would stabilize rents in London. Proposals include the introduction of a public sector letting agency, designed to incentivize “landlords to provide stable rents and longer tenancies.” The U.K. multifamily housing market had about 1.6 billion pounds worth of transactions last year, little changed from a year earlier, according to Savills. The London-based broker estimates purchasers may spend 2.5 billion pounds this year, about 50 percent more than 2012. That’s still small by international standards. Manhattan Sales The dollar volume of apartment-building sales in Manhattan alone more than doubled in 2012 to $9.1 billion, according to data compiled by New York-based Real Capital Analytics Inc. In Germany the value of multifamily-building sales rose 46 percent last year to 10.4 billion euros, according to Savills. U.K. buyers have about 2.85 billion pounds to spend on apartment buildings and other multifamily assets, 185 percent more than last year, according to data compiled by Chicago-based Jones Lang. “This is likely to be just the tip of the iceberg,” Jones Lang said in a statement. It “doesn’t take into account potential investment from U.K. institutions such as pension funds, insurers and third party fund managers — the majority of which are currently either deploying or looking to deploy capital into the residential sector.” To contact the reporters on this story: Neil Callanan in London at ncallanan@bloomberg.net; To contact the reporter on this story: Patrick Gower in London at pgower@bloomberg.net; Christopher Spillane in Johannesburg at cspillane3@bloomberg.net Continue reading
Column: Housing Rebound Boosts Timber Stocks
By John Wasik CHICAGO | Mon Jun 3, 2013 4:42pm EDT (Reuters) – If a tree falls in the forest, can you make a little money? As the U.S. housing rebound continues, you can watch the value of your real estate rise. In addition you can reap gains from resource companies that own and process timber. Since most U.S. homes are still framed with wood, timber becomes a more valuable commodity as new construction booms. Home prices gained the most in seven years in March, according to a recent S&P Case-Shiller housing index report. Housing starts in April rose 16 percent over the previous month with new building permits up 14 percent, according to the U.S. Census Bureau. North American sawmills are running at the fastest pace in six years, up nearly 7 percent over last year, according to CIBC World Markets , a Canada-based investment bank. Growth in China is also contributing to the rebound. More than 60 percent of log exports from the Pacific Northwest head to the People’s Republic. Timber is also becoming more scarce as forests shrink. As a commodity, it provides an inflation hedge, too; the S&P Global Timber & Forestry index has produced an annualized return of nearly 7 percent over the past three years through April 30. The current Consumer Price Index is running at an average 1 percent. Why invest in timber and related resource companies instead of the obvious play in homebuilder stocks ? Those companies have been rallying for more than a year and are pricey. The SPDR S&P Homebuilders ETF, for example, a fund that holds most of the major home-construction companies, is up more than 50 percent over the past year through Friday, almost double the price of a consumer cyclical index. That portfolio’s price- earnings ratio – what investors are willing to pay for a dollar of expected earnings – is 20, compared to 14.4, for the SP 500. The underlying S&P index for the timber sector has climbed more than 31 percent over the past year through May 31 compared to a nearly 50-percent gain for the S&P Homebuilders Index. The iShares Global Timber and Forestry Index ETF (WOOD), has p/e of 18; that’s not a bargain price either, but timber stocks are a better value now relative to homebuilding stocks and may have more upside. REGIONAL VIEW Most timber companies specialize in specific regions where they own or lease properties. But to obtain global diversification, it’s best to consider one of two exchange-traded funds on the market that hold timber, packaging and real estate investment trusts (REITs) that own lumber resources. The Guggenheim Timber ETF, holds major producers like Weyerhaeuser Co and International Paper Co. It tracks the Beacon Global Timber Index, which holds companies that own or lease forested land or produce wood-based products. More than 40 percent of the companies are based in greater Europe or Asia. It’s up 8 percent year to date through May 31 and gained 25 percent last year. As an alternative, the iShares timber ETF mentioned above has more than 60 percent of its holdings in the Americas, including Plum Creek Timber Company Inc and Potlatch Corp . The iShares fund is a better deal on expenses than the Guggenheim product, charging 0.48 percent annually for management, compared to 0.70 percent for the Guggenheim fund. It’s gained 4 percent year to date and 23 percent last year. Of the two ETFs, the iShares fund offers more total international exposure, including 13 percent stakes in Brazilian companies and 11 percent in Japan , says Eric Dutram, ETF analyst at Zacks Investment Research in Chicago. Either way, the two funds are reasonably priced, he said. Many timber companies give you a bonus if they’re vertically integrated. They could mean they are producing value-added products like rayon, packaging or paper, which also would benefit from a broad economic recovery. These companies may also own or lease land that may result in other mineral plays such as petroleum or natural gas . Keep in mind that timber trends can cut the other way. As funds specializing in a handful of commodities that rise and fall directly with economic demand, these ETFs are not for nervous investors. Guggenenheim Timber lost nearly half its value in 2008 and has a 32-percent five-year standard deviation, a volatility gauge. That compares to 20 percent for a world natural resources stock index. If the housing market goes south again, then these ETFs will suffer. Consider them only as small parts of a larger portfolio and not large holdings. (The author is a Reuters columnist and the opinions expressed are his own. For more from John Wasik see link.reuters.com/syk97s ) (Follow us @ReutersMoney or here Editing by Linda Stern and Andrew Hay) Continue reading
Is The UK Really Heading For A Property Bubble?
Homeowners are cheered by positive house price indices but experts say recovery in the property market is still slow outside London. by Michelle McGagh on May 28, 2013 at 14:36 A lack of new properties is pushing up house prices but rises in London have skewed the market, which means that contrary to some reports, the UK is still a long way from a replay of the 2007 property bubble. Followers of house price indices will have been cheered by news of a recovering market with commentators making encouraging noises about how this year will play out for property. Four years of historically low interest rates and more recently the government’s Funding for Lending scheme – which has given lenders access to cheap funds – have pushed mortgage rates to all-time lows and increased competition in the home loan market . Lenders are falling over themselves to take on new business but there is a snag; the supply of property on the market is not keeping up with demand which has pushed up the prices of property available. Data from property analytics company Hometrack shows the number of sales agreed is outstripping supply. Nationally new supply grew 2.8% this month while sales agreed jumped 8.2% higher. This lack of supply is the key driver of increases in property prices but there is also disparity in the way indices record house price movements. Property website Rightmove has the most optimistic outlook on the market, stating that the average UK house price hit a record high of £250,000 this month. However, Ray Boulger of mortgage broker John Charcol, said the Rightmove data was the ‘least reliable’ of the indices as it was based on asking prices rather than actual prices achieved. The more reliable house price indices from Nationwide and Halifax paint a more subdued picture of the UK housing market. Nationwide’s data showed a typical home actually declined in value by 0.1% between March and April, but was 0.9% higher than April 2012. It estimated a typical home is now worth £165,586, far below the £250,000 estimated by Rightmove. Halifax’s index puts the average house price at £166,094, more in line with the Nationwide estimate, but its figures show house prices increased by 1.1% in April. All house price indices operate on their own calculations but one key factor that cannot be ignored is the Bank of England’s mortgage approval statistics, which is a leading indicator of completed house sales. Between February and March this year mortgage approvals increased 3% following two successive monthly falls, but approvals in the first three months of 2013 were still 1% lower than in the previous three months. No bubble yet If demand continues to outstrip supply then house prices will continue to increase but according to the experts, the UK is still a long way from a property bubble. Boulger has revised up his predictions for growth in property this year from 3% to 5% and tentatively expects the same in 2014 but said: ‘We are not near bubble territory yet, we are flat-lined and in real terms house prices have gone up less than inflation.’ However, he added that sellers were being ‘ambitious’ in their asking prices and that as consumer confidence grows in the property market, higher house prices will become ‘a self-fulfilling prophecy’. Craig McKinley, mortgage director at Halifax, part of the Lloyds Banking Group, said the UK was ‘very far from a property bubble’ and predicted growth of between 0% and 2% this year, with house prices expected to rise in 2014. He said that consumer confidence and the economy were still too weak to cause a property bubble. Lenders would also be constrained by new rules coming into force next year that will force them to give a lot more information to borrowers. ‘We are not seeing evidence of a UK property bubble,’ he said. ‘Next year will be when we get a national recovery but we are not expecting runaway growth because the economy and consumer confidence remain weak.’ Philip Croggan of The Economist is more optimistic in his outlook for house prices and said that low interest rates usually translate into a property bubble. ‘In a year or two we will have an equity [stock market] bubble and I would not be surprised if we have another property bubble,’ he said. ‘London house prices are still going up, the yield on commercial property is good and when we have low interest rates it generally turns into a property bubble. ‘In a year or two there will be someone trying to sell you a property fund on the back of two years of [house price] growth.’ Two-speed market As Croggan points out, talk of a property bubble has been centred around price rises in London and the South East but rises in those areas do not reflect the rest of the country . Hometrack figures show that average prices increased 0.3% in April but this figure was skewed by the 0.7% rise in Greater London. Out of the 10 regions Hometrack analyses, which excludes Northern Ireland, four saw no increase in prices in April, the North East saw a 0.1% fall, and the remaining four regions did not see a rise above 0.2%. McKinley said there was ‘definitely a two-speed market of London and the South East versus the rest of the country’ and that in some areas prices were still declining. ‘London and the South East have been affected by external factors like overseas interest and wealthy individuals in the eurozone looking to protect their money,’ he said. ‘There is a lot of foreign money in London that is not in the rest of the country.’ Future increases London-style increases may be a long way off for the rest of the country but there is confidence that property values will continue to tick up next year thanks to the introduction of the government’s Help to Buy scheme. From January 2014 the scheme will offer interest-free loans to buyers and guarantee the mortgages of first-time buyers with 5% deposits, meaning the market will be boosted with more eager buyers. The International Monetary Fund (IMF) has warned that the rush of buyers will be counter-productive . In a report on the UK economy, the IMF said: ‘This measure may temporarily help boost confidence in the housing market, but there is a risk that, in the absence of an adequate supply response, the result would ultimately be mostly house price increases that would work against the aim of boosting access to housing.’ Boulger shared the IMF’s concerns and said the Help to Buy scheme could cause a bubble if the government does not control it or fails to provide an increase in new build homes. Without the housing stock to soak up the increased number of buyers he said the Help to Buy scheme could ‘stoke up house prices to an unhealthy level’ and warned the government may have to cut the three-year long initiative short. However, McKinley holds the opposite view and does not think the Help to Buy scheme will mark the beginning of a property bubble. ‘We do not see that happening in the short-term but it could have an impact over the longer term ,’ he said. ‘We are seeing new builds increase but the question is whether they are building fast enough. ‘We are not overly concerned [that Help to Buy will increase property prices]. There will be more buyers but not exponentially more and they will still need a deposit and credit assessments, which are becoming stricter.’ Continue reading
