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The Changing PRS Sector: Why Institutional Investors Will Ring in the Changes



The Changing PRS Sector: Why Institutional Investors Will Ring in the Changes

Russell Gould, CEO, Vesta

The number of UK residents renting privately has doubled over the past decade, with some 20% of households (30% in London) now in private rented accommodation.[i] One-quarter of households in the UK are expected to rent privately by the end of 2021[ii].

These numbers are non-trivial, so why has there been so little interest from the institutional investment sector to-date in the burgeoning private rented sector investment opportunity? As highlighted by LaSalle Investment Management[iii] “the UK is viewed by many international investors as having one of the most developed real estate markets globally. Given that the residential sector is a significant part of most developed countries’ institutional investment universe, it is reasonable to ask why UK institutions have largely ignored it – until recently.”

According to reports, institutional investors are now starting to move on to the traditional buy-to-let turf, hoping to benefit from their economies of scale while being able to offer better housing to tenants[iv].

Recently it was announced that Legal & General is launching an affordable housing business in addition to its housebuilding business, Legal & General Homes, with a pipeline of about 3,000 homes across sites in Oxfordshire and Berkshire.  They are now one of the major lenders to developers in the “build-to-rent” market.

Persuaded by reliable income growth and robust capital values, institutional investors are clearly turning their heads. A survey in The Property Magazine International canvassed 63 Institutions and Real Estate Investors and found that 62% are planning to invest in the sector over the next 12 months and 69% over the next three years[v].

With private rental figures up by £14 billion in five years representing a 35% increase from a 21% rise in the number of homes[vi]it would seem that the opportunity is now ripe for institutional investors to enter this growth sector.

But there’s a history to this. Push-back from the institutional investment sector has been that, the cost of managing a large number of rental units dispersed among existing stock can be prohibitive for larger scale investors, which is why it has been traditionally dominated by individual landlords.

In addition, the average lot size of an institutional investor property acquisition is over £10 million and there are currently few residential investment opportunities that could meet that criterion. Small lot sizes and high transaction costs can make assembling stock for a portfolio difficult and costly; points all featured in the HM Treasury Report ‘Investment in the UK Private Rented Sector’. Another consideration from the report is that, unlike commercial property where asset prices are a function of the rental yield of an investment, owner-occupiers drive the market for residential property, meaning that rental yields in the PRS do not reflect the underlying price of the asset.

That’s the traditional institutional investor view based on a marketplace that has seen little innovation or change over the past decades in how PRS properties are transacted or deliver returns for investors.  However, the digital revolution and a strong appetite for change is yielding a new generation of models in the buy-to-let sector thanks to proptech and innovation.  These new models address the traditional barriers-to-entry for the institutional investor, enabling them to benefit from adding assets to their portfolios easily with appealing longer-term revenue streams without the usual property-ownership headaches or costly transactions and buying/selling fees.

The innovators who are at the forefront of re-designing the buy-to-let market include a number of start-ups, industry stalwarts and property professionals who have recognised that the current buy-to-let market is broken, and that technology can provide some of the answers and support new ways of buying, selling and delivering returns for all types of investor including institutional investors. Examples include crowd-funding models such as Property Moose with its 28,500 investment members[vii] to Property Partner where investors invest in PRS properties and are rewarded with monthly rental payments while the price of the share tracks the price of the property.[viii]Vesta Property is another.  The Vesta buy-to-let marketplace removes commission and replaces it with a fixed fee. Every property is sold with tenants-in-place at an agreed fixed price, and all documentation, valuations and rental records are made available to individuals and the institutional investor who buys a ready-made income generating investment in addition to an asset.

Tenants-in-place is not only novel, it’s a game-changer at a time when tenants’ rights are the subject of national debate, and a key concern of the government (raised in the recent 2017 report ‘Fixing Our Broken Housing Market’).  Traditionally, tenants have had to move out of the house if the buy-to-let owner wants to sell causing disruption and stress to families who then face potential uncertainty.

The National Landlord Association estimates that 380,000 landlords could flood the sales market in the near future – a result of mounting regulation and the impact of Section 24 of the Finance Act that removes the landlord’s ability to deduct the legitimate expense of mortgage interest.  This may result in an additional flurry of properties exchanging hands and a consolidation of the market as single unit landlords sell to portfolio landlords who in turn sell to institutions as they seek to increase their portfolios. Could this anticipated sell-off see innovative online buy-to-let marketplaces totally replace the traditional buy/sell model? The tide has clearly already started to turn as institutional investors, tired of the old ways of buying and selling, but eager to benefit from the flourishing sector, change the way that they enter the private rented sector – this time driven by technology and innovation.










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UK seeks G7 consensus on digital competition after Facebook blackout



UK seeks G7 consensus on digital competition after Facebook blackout 1

LONDON (Reuters) – Britain is seeking to build a consensus among G7 nations on how to stop large technology companies exploiting their dominance, warning that there can be no repeat of Facebook’s one-week media blackout in Australia.

Facebook’s row with the Australian government over payment for local news, although now resolved, has increased international focus on the power wielded by tech corporations.

“We will hold these companies to account and bridge the gap between what they say they do and what happens in practice,” Britain’s digital minister Oliver Dowden said on Friday.

“We will prevent these firms from exploiting their dominance to the detriment of people and the businesses that rely on them.”

Dowden said recent events had strengthened his view that digital markets did not currently function properly.

He spoke after a meeting with Facebook’s Vice-President for Global Affairs, Nick Clegg, a former British deputy prime minister.

“I put these concerns to Facebook and set out our interest in levelling the playing field to enable proper commercial relationships to be formed. We must avoid such nuclear options being taken again,” Dowden said in a statement.

Facebook said in a statement that the call had been constructive, and that it had already struck commercial deals with most major publishers in Britain.

“Nick strongly agreed with the Secretary of State’s (Dowden’s) assertion that the government’s general preference is for companies to enter freely into proper commercial relationships with each other,” a Facebook spokesman said.

Britain will host a meeting of G7 leaders in June.

It is seeking to build consensus there for coordinated action toward “promoting competitive, innovative digital markets while protecting the free speech and journalism that underpin our democracy and precious liberties,” Dowden said.

The G7 comprises the United States, Japan, Britain, Germany, France, Italy and Canada, but Australia has also been invited.

Britain is working on a new competition regime aimed at giving consumers more control over their data, and introducing legislation that could regulate social media platforms to prevent the spread of illegal or extremist content and bullying.

(Reporting by William James; Editing by Gareth Jones and John Stonestreet)


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Britain to offer fast-track visas to bolster fintechs after Brexit



Britain to offer fast-track visas to bolster fintechs after Brexit 2

By Huw Jones

LONDON (Reuters) – Britain said on Friday it would offer a fast-track visa scheme for jobs at high-growth companies after a government-backed review warned that financial technology firms will struggle with Brexit and tougher competition for global talent.

Finance minister Rishi Sunak said that now Britain has left the European Union, it wants to make sure its immigration system helps businesses attract the best hires.

“This new fast-track scale-up stream will make it easier for fintech firms to recruit innovators and job creators, who will help them grow,” Sunak said in a statement.

Over 40% of fintech staff in Britain come from overseas, and the new visa scheme, open to migrants with job offers at high-growth firms that are scaling up, will start in March 2022.

Brexit cut fintechs’ access to the EU single market and made it far harder to employ staff from the bloc, leaving Britain less attractive for the industry.

The review published on Friday and headed by Ron Kalifa, former CEO of payments fintech Worldpay, set out a “strategy and delivery model” that also includes a new 1 billion pound ($1.39 billion) start-up fund.

“It’s about underpinning financial services and our place in the world, and bringing innovation into mainstream banking,” Kalifa told Reuters.

Britain has a 10% share of the global fintech market, generating 11 billion pounds ($15.6 billion) in revenue.

The review said Brexit, heavy investment in fintech by Australia, Canada and Singapore, and the need to be nimbler as COVID-19 accelerates digitalisation of finance, all mean the sector’s future in Britain is not assured.

It also recommends more flexible listing rules for fintechs to catch up with New York.

“We recognise the need to make the UK attractive a more attractive location for IPOs,” said Britain’s financial services minister John Glen, adding that a separate review on listings rules would be published shortly.

“Those findings, along with Ron’s report today, should provide an excellent evidence base for further reform.”


Britain pioneered “sandboxes” to allow fintechs to test products on real consumers under supervision, and the review says regulators should move to the next stage and set up “scale-boxes” to help fintechs navigate red tape to grow.

“It’s a question of knowing who to call when there’s a problem,” said Kay Swinburne, vice chair of financial services at consultants KPMG and a contributor to the review.

A UK fintech wanting to serve EU clients would have to open a hub in the bloc, an expensive undertaking for a start-up.

“Leaving the EU and access to the single market going away is a big deal, so the UK has to do something significant to make fintechs stay here,” Swinburne said.

The review seeks to join the dots on fintech policy across government departments and regulators, and marshal private sector efforts under a new Centre for Finance, Innovation and Technology (CFIT).

“There is no framework but bits of individual policies, and nowhere does it come together,” said Rachel Kent, a lawyer at Hogan Lovells and contributor to the review.

($1 = 0.7064 pounds)

(Reporting by Huw Jones; editing by Jane Merriman and John Stonestreet)


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G20 to show united front on support for global economic recovery, cash for IMF



G20 to show united front on support for global economic recovery, cash for IMF 3

By Michael Nienaber and Andrea Shalal

BERLIN/WASHINGTON/ROME (Reuters) – The world’s financial leaders are expected on Friday to agree to continue supportive measures for the global economy and look to boost the International Monetary Fund’s resources so it can help poorer countries fight off the effects of the pandemic.

Finance ministers and central bank governors of the world’s top 20 economies, called the G20, held a video-conference on Friday. The global response to the economic havoc wreaked by the coronavirus was at top of the agenda.

In the first comments by a participating policymaker, the European Union’s economics commissioner Paolo Gentiloni said the meeting had been “good”, with consensus on the need for a common effort on global COVID vaccinations.

“Avoid premature withdrawal of supportive fiscal policy” and “progress towards agreement on digital and minimal taxation” he said in a Tweet, signalling other areas of apparent accord.

A news conference by Italy, which holds the annual G20 presidency, is scheduled for 17.15 (1615 GMT)

The meeting comes as the United States is readying $1.9 trillion in fiscal stimulus and the European Union has already put together more than 3 trillion euros ($3.63 trillion) to keep its economies going despite COVID-19 lockdowns.

But despite the large sums, problems with the global rollout of vaccines and the emergence of new variants of the coronavirus mean the future of the recovery remains uncertain.

German Finance Minister Olaf Scholz warned earlier on Friday that recovery was taking longer than expected and it was too early to roll back support.

“Contrary to what had been hoped for, we cannot speak of a full recovery yet. For us in the G20 talks, the central task remains to lead our countries through the severe crisis,” Scholz told reporters ahead of the virtual meeting.

“We must not scale back the support programmes too early and too quickly. That’s what I’m also going to campaign for among my G20 colleagues today,” he said.


Hopes for constructive discussions at the meeting are high among G20 countries because it is the first since Joe Biden, who vowed to rebuild cooperation in international bodies, became U.S. president.

While the IMF sees the U.S. economy returning to pre-crisis levels at the end of this year, it may take Europe until the middle of 2022 to reach that point.

The recovery is fragile elsewhere too – factory activity in China grew at the slowest pace in five months in January, hit by a wave of domestic coronavirus infections, and in Japan fourth quarter growth slowed from the previous quarter with new lockdowns clouding the outlook.

“The initially hoped-for V-shaped recovery is now increasingly looking rather more like a long U-shaped recovery. That is why the stabilization measures in almost all G20 states have to be maintained in order to continue supporting the economy,” a G20 official said.

But while the richest economies can afford to stimulate an economic recovery by borrowing more on the market, poorer ones would benefit from being able to tap credit lines from the IMF — the global lender of last resort.

To give itself more firepower, the Fund proposed last year to increase its war chest by $500 billion in the IMF’s own currency called the Special Drawing Rights (SDR), but the idea was blocked by then U.S. President Donald Trump.

Scholz said the change of administration in Washington on Jan. 20 improved the prospects for more IMF resources. He pointed to a letter sent by U.S. Treasury Secretary Janet Yellen to G20 colleagues on Thursday, which he described as a positive sign also for efforts to reform global tax rules.

Civil society groups, religious leaders and some Democratic lawmakers in the U.S. Congress have called for a much larger allocation of IMF resources, of $3 trillion, but sources familiar with the matter said they viewed such a large move as unlikely for now.

The G20 may also agree to extend a suspension of debt servicing for poorest countries by another six months.

($1 = 0.8254 euros)

(Reporting by Michael Nienaber in Berlin, Jan Strupczewski in Brussels and Gavin Jones in Rome; Andrea Shalal and David Lawder in Washington; Editing by Daniel Wallis, Susan Fenton and Crispian Balmer)


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