UK - Half of investors are willing to take on some development risk when investing in UK housing, according to a report by the Mill Group.

More than 50% of 28 institutional investors - with an aggregate £700m (€882m) available to invest in the sector - identified new-build developments as optimal residential investments, although on average they wanted these to make up 10-15% of their residential portfolios.

Andrew Taylor, origination consultant at the Mill Group, who conducted the research, said the findings undermined common perceptions that institutional investors lack the risk appetite to take on developments.

"One organisation that, in the past, had a 20% allocation to opportunistic investments was happy to look at single-digit IRR with a good income stream," he said.

Most of the respondents, which include Hermes, Abu Dhabi Investment Authority, The Church Commissioners, RREEF Real Estate and Blackrock, already invest in residential overseas, notably in established markets such as the US, Canada and Germany.

Around half of those polled are already exposed to UK residential, with 70% expecting to increase their exposure over the next few years.

Among those with existing investments, 80% invested outside London, and 65% invested outside of London and the southeast.

UK institutions are split 50-50 in their preference for direct or fund investment in residential, the data suggested. Those inclined to invest directly were more likely to opt for a joint venture over a separate account.

"They want someone to hold their hand as they jump over the precipice," Taylor said.

The Mill Group research suggests widespread support for a narrower definition of residential that excludes categories such as student accommodation, hotels and ground rents. Investors favoured a narrower focus on private rented schemes, street property, social housing, new-build and multi-family projects.

But confusion over categories - the survey threw up various definitions of multi-family, for example - masked a degree of ignorance of the residential market.

The study found that 40% of investors underestimate the size of the London residential market and 42% either underestimate or overestimate UK residential transaction values.

The Halifax house price index, much favoured by house-buyers, emerged as the most trusted source of information on the market, above investors' in-house resources.