UNITED KINGDOM
Build to Rent vs Buy to Let
Knowing the difference and making it work
BY LISA BATHURST
W
hen investing in the UK property market , most of us would look to the Buy-To- Let ( BTL ) model . While this model has always played a crucial role in property investment , the UK property landscape has changed . Shifting tenant attitudes and taxation and mortgage lending regulation have left BTL investors increasingly constrained . Now , savvy investors are looking to alternatives and changing their investment strategy .
That alternative is Build-To-Rent ( BTR ). The British Property Federation has estimated that £ 30bn is to be committed nationally to this sector . BTR is a term that describes the market sector in which new developments are built purely to be rented out . Perfect for overseas landlords , these buildings often offer newer , higher quality homes , communal services such as a concierge , rooftop gardens , cinema rooms and gyms , as well as ready-made communities and amenities .
With 69 % of landlords currently put off further BTL investment , the BTL industry is set to decline . That , combined with the UK ’ s housing shortage and new tenant expectations , means that there is a vacuum that BTR is set to fill . In fact , the UK Private Rented Sector now has 5.7 million households and , according to PWC , is expected to grow to 7.2 million by 2025 .
Why does it work ?
‘ Generation rent ’, which will make up 60 % of the UK by 2025 , prefers to rent in BTR schemes , as they expect amenities such as a concierge that traditional BTL properties simply do not have . The millennial generation does not want to rent in older buildings ; they want fully managed developments built with their end-user ’ s needs in mind . With nationwide B2R brands growing , transient tenants can know what to expect from different schemes as they move around the UK . This takes an element of risk out of letting , where , in the past , landlord standards have always varied greatly .
This new way of living focuses on community , shared spaces and facilities , creating a more convenient lifestyle , whilst professional management puts the resident ’ s experience at the centre of their decision-making .
You only need to look at the success of the Purpose Built Student Accommodation ( PBSA ) market , one of the best performing asset classes in the UK right now . There has been a huge rise of privately owned PBSA schemes , filling a much-needed gap in student accommodation in UK cities . Students want to rent in new builds , and the same is happening with the grown ups .
The UK Housing shortage
The UK currently needs 270,000 homes in order to meet the deficit identified by government . According to Manchester City Council ’ s residential growth prospectus , an additional 90,000 more properties across the city are required by 2027 , and only 1,800 per year are actually being built . Up to 60,000 homes per year are needed in London . The UK Government is supporting developers ’ plans to plug this deficit with BTR schemes , and many are already underway .
Even with Brexit and the measures introduced by the budget , the UK still has a growing population and tenant demand for private rental properties , meaning that the government continues to pledge support , legislation and resources to grow this sector .
BTR is particularly attractive to overseas investors due to its hands off capability . Most BTR schemes are fully managed by an in-house team already selected by the developer who manages the building and the tenants for you . It is in the developers ’ best interest to make sure the building is well managed , since this is the reason the tenants will seek them out , and in turn investors .
These new builds also offer a very low maintenance option when compared to traditional BTL properties , which are often older and require more maintenance . Older properties that are to be rented out are also potentially subject to the increasing health and safety regulations that pain traditional BTL landlords . A new build will be designed with all the legislation in mind and should come with a 10 year build warranty for additional peace of mind . Get in touch at hello @ hurstandwills . com or visit hurstandwills . com
HOW TO INVEST IN BTR ( BUILD-TO-RENT )
As with any property investment , whether they are on the market with estate agents , or off-plan and brought to your attention by a property sourcing agent , you should never lose sight of the fundamental principles of property investment . Here are Hurst & Wills ’ top tips when considering an offshore BTR investment .
Invest in locations of identified demand , that work in line with government ’ s plans .
Always research the projected yields and capital growth of the specific developments , as well as comparables in the area .
Only invest in schemes by credible and experienced developers , who specialise in this sector .
Check the developers ’ previous schemes , and that tenants are happy living there .
Consider the future planning of the immediate area of your chosen scheme - most BTR projects are approved as a larger master plan of an area .
50 JUNE / JULY 2018 SA Real Estate Investor Magazine