In February this year the Institute for Fiscal Studies published new research showing that the proportion of young people in the UK who own their own home has more than halved in the last two decades – from 65% in 1995 to 27% today. In London, it hovers at just 20%.
With almost one-third of tenants in the UK also revealing that they do not ever plan on buying a home, it is understandable why so much institutional money has been pumped into the build to rent (BTR) sector here in the UK. But if you are a landlord who firmly believes that millennials will remain a generation of renters for quite some time and you want to hedge your bets, can you diversify some funds into the UK BTR sector?
The first government-backed REIT (real estate investment trust) aimed at tapping into the UK private rental sector was launched in June last year. The PRS REIT raised £250m from investors at its initial public offering, managing to secure the government’s Homes and Communities Agency as a major shareholder, and became the first UK vehicle wholly dedicated to the PRS sector.
The fund is run by Sigma PRS Management, part of Sigma Capital, and invests in a portfolio of newly constructed residential homes in large English towns and cities. As with all property that will be held long-term, the returns are primarily driven by the rents achieved, rental growth and high occupancy levels. Significant progress has already been made in deploying the raised capital, with over 900 homes either already completed or underway, and a further 2,000+ in the pipeline.
However, the REIT is targeting a gross rental yield of around 5% but with its share price down by 3-4% in its first year, (at the time of writing) the overall return has so far been negligible. Also, the great advantage of investing in a REIT is being able to diversify away from UK real estate (property). After all, if you are a landlord then you are already invested in generation rent here in the UK and as we have reported in previous articles, huge sums of money have already been invested in build to rent here with much more expected to follow.