UK – The latest research from the Investment Property Forum (IPF) suggests that 'management issues' are no longer seen as the main obstacle to institutional investment in UK housing.
The IPF has published its latest survey of institutional investors on the topic and found that low income yields were the principal concern for investors considering the residential sector.
The study also highlighted the four main reasons to invest: the 'return profile', 'development potential', 'stability of income' and 'low correlation with other asset classes'.
UK pension funds, insurers, property companies, local authorities and other institutions took part in the survey, and it has been estimated that the 44 institutions could generate net investment of £3.39bn in the sector over the next three years.
Pam Craddock, research director at IPF, said the findings were "hugely encouraging" and evidence of the early signs of a maturing market.
When the IPF launched the survey in 2012, management difficulties were highlighted as the main obstacle, but this year only two survey respondents cited the issue.
When asked whether the change could be attributed to a change in perception that better reflected reality, Craddock speculated that it could be a "reflection of the fact that [institutional investors] are beginning to look more closely at it".
Robin Martin, research director at Legal & General Property, recently told a property conference that "management intensity" had been "rather overestimated", and that the two major challenges were low yields and a lack of suitable stock. He argued that the issue round income yields could be mitigated through development.
David Skinner, CIO for real estate at Aviva Investors, told IP Real Estate today that the issue of low income yields could be "mitigated" through the construction of "residential investments that can be managed efficiently".
He explained: "If you have large-scale residential holdings that can be managed efficiently then you are obviously going to have a higher income yield than if the holdings are difficult to manage or inefficient. So in one sense they are two sides of the same coin, in my opinion."
Skinner highlighted the factor of 'low correlation with other assets' as the main attraction of residential investments for institutions.
"Because of the low correlation there is quite a lot of value to adding it to a commercial property portfolio or a multi-asset portfolio, in terms of the diversification benefits and the reduction in risk," he said.
"I think that does come through in the survey. But it means that investors shouldn't necessarily be seeking the same return that they seek from commercial property."
The London Pension Fund Authority (LPFA) is one UK institution considering moving into the residential sector.
CIO Alex Gracian told IP Real Estate that the LPFA was "currently looking at residential property, particularly within London, as one of the ways of capturing the illiquidity premium and maximising its ability as a long-term investor."
