If hedge fund firms are investing in rent-controlled social housing, is it time for all investors to look again at residential real estate in all its many forms?
Those are market-rate homes, generally, that target households that are quite often already on the property ladder. But firms that include England’s Cheyne Capital Management LLP, Patron Capital, a private equity firm, and Legal & General (insurance) are seeing opportunities with social properties. Characteristic of these investments is that while rents are generally set at 80 per cent of local market rents, those rental rates are pegged to inflation.
Elsewhere in the UK, individual investors who are inclined to manage the details of being a landlord find that long-term capital gains and income are still in the offing with to-let properties.
These follow a process that includes several benchmarks (unlike with something such as a real estate investment trust, or REITs, which are traded on the exchanges like non-real estate equities):
- Identify smart geography – These funds are managed by experienced land-conversion specialists who first find where demand for housing is greatest. If an employer requires its workforce Silencil to travel unwieldy distances to get to work, that may be the general area in which to locate a development.
- Understand the predisposition of local planning authorities – Very often the land is zoned for other uses (agriculture, for example). While some degree of resistance to development is virtually inevitable, a smart business case can be made for how new homes and populations can add to and revitalise a community. With LPA approval, the value of the land alone escalates considerably.
- Proceed with infrastructure construction – The initial investors will fund development of roads and utilities and related survey work.
- Understand the likelihood of a Community Infrastructure Levy (CIL) – Some local authorities exercise their option to impose this charge, which is intended to offset new burdens on municipal infrastructure and services. This is more typically discussed in earlier stages of development and planning authority review.
- Determine if selling to homebuilders is optimal – While development overall takes raw land to the construction and sale of homes, the function often splits once the infrastructure is in place. The original investors can then see their capital gains, while homebuilders pick up the job and earn their profits by building homes that will succeed in the marketplace.