UK – UK residential property investment is showing signs of growth, but foreign investors are divided on whether to enter the market, according to participants at an IP Real Estate Awards seminar.

Pam Craddock, research director at the Investment Property Forum, presented results of the organisation's 2013 survey of residential investment, which showed warming investor attitudes towards the UK residential property sector.

"These preliminary figures do indicate a continuing commitment and gradual increase in investment in the UK residential sector," she said.

Of the 33 survey participants who had responded to both the 2012 and 2013 surveys, 22 had been invested in residential in 2012, and this number increased to 29 in 2013, Craddock noted.

Respondents had increased the amount of money they put into the sector to £9.5bn (€11.2bn) from £7.1bn, she said.

Stated investment intentions pointed to a potential inflow of residential investment of £3.8bn over the next three years, she said.

Reasons given by survey respondents for not investing in residential were that the income yield on the asset class was too low, that it was simply too difficult to deal with, reputational risk, the difficulty in achieving sufficient scale and lack of liquidity or insufficient market size.

Although residential property investment still makes up less than 2% of overall UK property investment, the seminar heard that returns on the asset class had outperformed.

Mark Weedon, head of UK alternative real estate at benchmark provider IPD, said residential market lets had outperformed all property indices, equities and Gilts in 2012 and over 12 years.

Residential was also less highly correlated with equities over the last 12 years than property as a whole, he said.

"If you ran an asset allocation model, which we did about a year ago on the whole quarterly index, it came out at about 60% for one of the better performing retail segments, and about 40% going to residential would be ideal," Weedon said.

Asked why his firm did not invest in the UK residential market – even though it is heavily invested in the German residential sectors – Marcus Cieleback, head of research at PATRIZIA Immobilien, joked: "You're on an island and have your own currency.

"Being honest, when we talk to our investors, they're used to buying in large apartment blocks that make management very efficient.

"If you look at the UK market, you're lacking this. You might have larger buildings, but they are more for the private buy-to-let market, and then you have some of them that are more or less affordable housing, which is not really the sector that our investors want to go into."

The UK was simply lacking the stock that PATRIZIA Immobilien's investors were after, he said.

"Our investors are heavily biased towards income return, and if you look at the numbers just presented, that's not very persuasive if you're looking for income return in the area of 4%, 4.5% and 5% rent," he said.

If the stock were available, he said his firm would possibly invest in the UK.

However, Martijn Vos, senior portfolio manager of real estate at Dutch fund APG, said his fund did want to add to its residential stock in the greater London area.

The fund currently has a total of €3bn in residential property investment and aims to diversify this globally.

"For the next five years, we see a lot of rental growth prospects," he said of the UK market.

"It can be higher than we actually underwrite – we calculate no capital growth other than flow as a result of that rental growth."

But it was unlikely APG would venture into other cities in the UK in its search for investments, he said.

"There is a demand for 17,000 houses a year in London, so why turn to another market?" he asked. "Yes it could offer higher yields, but I've yet to be convinced."

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