Buy-to-let (BTL) landlords leaving the private rented sector (PRS) could pave the way for build to rent investment, ratings firm Moody’s suggested.
At a briefing held this week giving an outlook for the European real estate market, Brian Snow, vice president and senior credit officer at Moody’s, said while a large percentage of the rental market was owned by BTL landlords, the “incentives have become… disincentives for them to leave this market because they can no longer deduct the cost of interest, because Section 21 is going away, and the cost is becoming really high”.
He said this was creating more opportunity for the build to rent sector, as it was more efficient in terms of management and profit margins.
“I think everyone expects increasing growth of the build to rent market, which is more institutional rental housing. That’s going to grow and has been growing from a very small number.
“There’s a lot of opportunity here because the market is so fragmented,” Snow added.
Snow said there was more capital from pension funds flowing into the sector, but the costs of building and land were still very high.
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He went on to say the Building Safety Act had made it “much more expensive to build high-rise rental housing because the specifications have changed”.
Snow said this could open opportunities up for “very large players”, citing British Land, which acquired land in Canada Water and was building multiple units.
“The large players who already own lots of land, they will be able to do this,” Snow added.
Additionally, Ramzi Kattan, vice president and senior credit officer at Moody’s, said investors who struggled to see the returns in the rental market were turning to shared ownership and co-living projects instead.
Money ‘chasing’ the rental market
When asked how government policy might affect investment in the UK rental market, Kattan said there was a lot of capital “chasing” the UK residential sector but not as many transactions taking place.
Kattan said it was harder to get finance for single family homes and, as a result, the firm had been seeing investors “team up with housebuilders to deliver some of that”.
Giulia Calcabrini, associate vice president and analyst at Moody’s, said elevated rental demand would continue because the capacity of homebuyers was “still very much limited”, and although interest rates were coming down, they were still “much higher” than they used to be.
She said this was combined with an undersupply of properties and limited construction activity, “especially for affordable housing”.
Calcabrini added that this could lead to social pressure to make housing more affordable, but whether this could materialise through more “stringent” regulation remained to be seen.
