Aviva Plc is preparing a 1 billion-pound fund to purchase newly built homes.

Blacklight

Investment funds may become Britain’s next generation of residential landlords following a government- backed group’s 17-month campaign to revive the homebuilding market after individual investors were forced out.

Aviva Plc is preparing a 1 billion-pound ($1.6 billion) fund to purchase newly built homes, according to its adviser. The U.K.’s second-biggest insurer is among the institutional investors approached by the state-funded Homes and Communities Agency as it tries to replace small-scale buyers that were pushed out of the market during the credit crisis.

The HCA, responsible for promoting affordable housing in England, aims to lift homebuilding from the lowest level since World War II by touting a 500 billion-pound market that offers better returns than commercial property. Loans for so-called buy-to-let purchases have fallen by 73 percent from their 2007 peak, according to the Council of Mortgage Lenders.

“We’re not far off being able to launch it, in terms of money and the product,” said Lacey, who expects the fund to be created by the end of the year. “The U.K. is seen as a relatively safe haven. We are concentrating on London and the Southeast.”

A combination of stable rents and falling housing values has increased rental yields, the annual rental income as a proportion of a property’s value. The five-year average total return for residential property is 6.8 percent, according to research company Investment Property Databank. That compares with 1.8 percent for commercial property.

So large investors are set to take up the slack in the UK's BTL market. Keeps builders building and properties selling, can't be bad for the economy.

ILW

All those new houses could drive down prices though.

C_Mababejive

I wonder who they will be renting them to? Will they become social housing?

amcluesent

Could be net good, I don't expect fund managers will be sanguine about chav families trashing the neighbourhood like councils seem to be.

chucky

ILW wrote: »

All those new houses could drive down prices though.

they're not for sale - they're for rent

try again

Blacklight

amcluesent wrote: »

Could be net good, I don't expect fund managers will be sanguine about chav families trashing the neighbourhood like councils seem to be.

Might be why they're looking to share the risk with the builder in some cases. You get half the margin but also partner up with someone with a bit of building savvy.

It's either going to cause an explosion in the construction industry, or prevent any new build houses coming on the market for private sale.

ILW

chucky wrote: »

they're not for sale - they're for rent

try again

Still increases overall supply, thereby could reduce prices, just like BTL increased prices.

chucky

ILW wrote: »

Still increases overall supply, thereby could reduce prices, just like BTL increased prices.

this will be blocks of new builds - a $1.6 billion fund will be 6,700 properties.

Aviva Plc is preparing a 1 billion-pound ($1.6 billion) fund to purchase newly built homes

try again

ILW

OK, could cause the prices of flats to drop.

Blacklight

ILW wrote: »

Still increases overall supply, thereby could reduce prices, just like BTL increased prices.

If amateur BTL was responsible for a 7% increase in property prices during the boom, what will be the effect of new landlord with a billion in his back pocket entering the market by the end of the year?

ILW

Depends what they are buying or building. If they are just going to be over bidding FTBs then it could cause prices to rise, if they are creating new stock it could cause prices to fall.