The BBC's Housing Briefing estimates that the UK has built 1.2 million fewer homes than they should have, and the need for more homes is increasing (i). The calculation suggests it will take at least 15 years at current building rates to close the gap, and that is not enough of what being built is affordable.
Hence, BTR concept has become a new wave for real estate in the UK in recent years. The rise of BTR has been driven by the followings:-
Dire issue of affordability. The UK house price affordability worsens for the past decade. Currently, the average monthly installment for a house in the UK of £231,855 (average house price as at March 2020) costs one third of the average income for a citizen there. Hence, it has a become a new norm among the UK citizens to rent instead of owning a propertiy;
Even with a good job and stable income source, many millennials are saddled with student loans, credit card debt and/or a lack of substantial savings. Even in a two-income household, it’s hard for this generation to save for the down payment on a decent home;
There is huge demand for high-quality, professionally managed properties, often offering on-site amenities (such as a concierge, communal roof terraces and gym) and convenient transport links, with focus solely on the tenants’ need compared to the conventional private rented sector; and
There is a lot of the pressure arise from the gap falls on those renting privately. The current private rented sector is dominated by amateur landlords, often with little or no residential management experience. It happens that many the times callous private landlords evict tenants at short notice without solid reason and imposed ridiculous conditions of failure which the tenants need to incur extra costs.
With BTR scheme, it offers the advantages of affordability (i.e. sans security deposit, quality homes without ownership), flexibility (i.e. easy access to different cities, tenure of rental), convenience (i.e. site-based management, customer service 7 days a week), customisation (design and built based upon different demographics, lifestyles and age groups) and security (worry not of being kicked-out after tenancy ends).
According to the British Property Federation, a trade body, there are nearly 100,000 build-to-rent homes either completed, under construction or in planning phase across the UK. With the number of renters only predicted to go up, it is likely we will see many more build-to-rent developments popping up. This might be a big number but currently the UK builds 1.2 million fewer homes than they should have and the shortfall is increasing.
The long term nature of this investment makes BTR particularly attractive for pension funds and sovereign wealth funds, who typically commit investments for at least a decade as it provides stability and flexibility to weather market downturns. It is factual that BTR developments yield smaller return than developments build for sale. However, a combination of rising house prices and rising rentals are attracting large investors’ appetite into BTR concept. In the case of EWINT, Tan Sri’ Liew Kee Sin highlighted that the profitability of this business is lower than that of open market trading, no more than 10%, but the required cost is relatively low, which can provide stable recurring income and cash flow for enterprises. Therefore, the management will actively expand this new business in London as the main growth driver in the medium and long term.
With recent article dated 21 July 2020 (ii), Ewint 70%-owned subsidiary EcoWorld London is set to launch a BTR company called Apo, targeting 5,000 homes under management in five years and subsequently, grow to 10,000 homes in the next 10 years.
Apo aims to partner with investors, developers and service providers. It is currently in talks with a number of developers, focusing on expansion in London initially, with the regions to follow. Its approach is unique in combining the proactive day-to-day management that they need with the ability to drive returns through a real understanding of what residents want in terms of service, amenity and community.
This launch has demonstrated appetite from institutional investors as they emerged stronger than before during the Covid-19 crisis. With low interest rates environment across economically advanced countries which reduced return expectation of real estate assets, there is no better time for these investors to tap into BTR market as they can yield higher returns for their real estate investments. This bode well with the aggressive expansion of EWINT into BTR market.