As landlords are forecast to slightly turn away from the rental market due to rising prices, the build-to-rent sector is about the swoop in and save the day – and the UK’s property market.
Earlier this year, voices became louder saying build-to-rent was the single biggest sector in the future of British property. The bright star on a cold winter’s night, build-to-rent was going to be flooded with nationwide investment due to the simple fact that is side-stepped the stamp duty surcharge, making it cheaper for investors and offering tenants exactly what they wanted and needed.
Millions of pounds were committed to the sector by a variety of companies and everything look good. That was until the Chancellor announced that build-to-rent would not be exempt from the new surcharge after all.
Does this mean the end of build-to-rent or does the sector have what it takes to bounce back?
Below market value price
Simply put, the main reason that many investors are tempted to turn their backs on on the market is that it is becoming more expensive ever since the additional stamp duty levy came into force last month.
Build-to-rent experienced a massive letdown in late March, when the Chancellor revealed that it would not be exempt from the new surcharge as it had been expected previously. However, this is not all the sector has to offer for investors. There’s also build-to-rent’s below market value pricing.
It’s a fair assumption to say that the main reason why people are investing in property is the return on their investment. Now, with the stamp duty levy, this return has shrunk a bit. Buying build-to-rent, off-plan properties, however, means getting deals cheaper than they would be on the open market. A little perk that could just wipe out the price of that levy and make it more than worthwhile the investment.
Investing in property, like any investment, bears some risks, it always has and always will. And, at a time when the Chancellor seemingly makes it his mission to make a property owner’s life harder, chances are, these risks look even more dangerous.
However, this fear is unnecessary. Many build-to-rent investments offer guaranteed returns over a certain period of time to investors. This incentive takes away one of the biggest fears disguised a little voice telling an investor “No!” and gives some stability back to the market.
Looking at any forecast for homeownership in the UK over the next years, one thing is for sure: the rental market is growing. And it will continue to do so, creating potential for some long-term stability in the sector.
Growth in the market is currently mainly driven by Generation Rent, those who rent because they enjoy the freedom that comes with it and not because they have to. And this group doesn’t seem to be changing their minds any time soon. The Government even says that the proportion of people owning their home continues to drop. From almost three-quarters in the 1990s, the numbers dropped down to 62.5%, meaning that people are increasingly comfortable renting their home, even with an improving economy.
Build-to-rent is in a great condition when it comes to serving Generation Rent. Young people who make the decision to rent property want their rental home to be well located when it comes to transport and lifestyle, as well as covering all their needs.
The build-to-rent sector serves this better than any other area of the property market and is therefore set up well for long-term success.
Source: Property Wire