It’s that time of year again when the real estate world converges on Cannes, France, and this year the event will take place between 15 and 18 March. The format is the same as usual with developers seeking investment and meeting investors, fund managers and lenders, all flanked by advisors and professionals. The networking not only produces a raft of new contacts and deals, but acts as a yearly health check on the real estate industry generally. Amongst the cocktails and canapes of Cannes, there are some UK hot potato issues.
Last year there was a focus on the Private Rental Sector overshadowed by an imminent general election with the threats and uncertainties of a labour and Scots Nationalist coalition. Two months later the Conservatives, with their pro-private landlord stance, pulled off a victory against the odds. At that point the Private Rental Sector looked set fair to continue to expand, with not only the institutional investors starting to take note, but also individual landlords having the financial benefits of the Stamp Duty Land Tax (SDLT) changes from ‘slab to slice’ on residential property.
By July, the new Government had announced plans to limit the amounts of debt interest which would be tax deductible on residential property so that by 2020 only deduction of basic rate would be allowed. This was followed by putting the SDLT bandwagon into reverse with a 3% increased charge on buy to let residences.
However, if the Government appears to have turned on the individual residential landlord, it seems very keen on institutions investing in ‘build to rent’. The statistics suggest another year of under supply. Critics of the new Housing and Planning Bill will point to the starter homes initiative not only being expensive but also not creating any extra housing, merely changing the ownership of affordable housing. However, it does seem that institutional investment is beginning to flow into the sector with an increase in the units being built.
The debate will doubtless carry on into MIPIM 2016 with everyone from analysts of the PRS sector to UK institutions and beyond to overseas investors having an interest. How does the industry keep rental properties from becoming ‘for sale’ properties – restrictive covenants or separate use class? How will land for development be freed up – MoD/ NHS sell off or green belt destruction?
The one certainty is that demand for residential property is outstripping supply and that this is a political hot potato.
This is of course, only one of the ‘alternative’ asset classes in UK real estate. Part and parcel of the PRS debate is the retirement living sector. If we build attractive retirement village settings then the baby boom generation or ’empty nesters’ would be tempted to ‘downsize’ and free up a huge amount of housing stock.
Fund managers are looking further afield, and a recent survey revealed an average expectation of 20% of their money to be invested in alternatives by the end of 2016. Other types of asset seeing greater investment are the like of data centres and self-storage facilities.
The Michelmores team will be in attendance to catch up with clients and contacts and make some introductions between developers and their funder clients. The team heading out this year has expanded to cover planning and projects lawyers as well as real estate, tax and funds.