Is this the development that is going to change the face of property ownership in Britain? M&G, the investment arm of Prudential, has started building 152 flats in London’s north Acton for rent to middle-income residents of the capital – the first of what it expects will be £1bn-worth of investment into the private rented sector. It reckons it can make a long-term steady return of around 4% a year for investors – perfect for those who need a reliable income during their retirement now they don’t have to buy an annuity. Tenants, meanwhile, will enjoy secure long-term contracts free from the risk of being evicted at short notice and have professional year-round management.
Other major institutions, such as Aviva and Legal & General, are looking on with great interest. Until now the dramatic growth in the private rented sector has been dominated by amateur buy-to-let investors and, while many do their best, tales of rogue landlords and revenge evictions if you complain are becoming ever more common.
Because M&G is funding the development specifically as a “build-to-let” it has borrowed from America some of the small things that make rental apartment living more comfortable. The flats will have a full-time concierge. There are spaces to put a bicycle. Each block will have a function/hospitality room, perfect for holding parties and events without disturbing everyone else.
It doesn’t promise to be cheap – it’s aimed at those Londoners able to afford commercial rents. But in making its first major investment in the private rented sector M&G decided not to go down the route of building luxury flats for Singaporean or Hong Kong investors in “prime” central London. “These will be homes for normal working people, not oligarchs,” says Alex Greaves of M&G.
“In a typical buy-to-let the tenant knows the letting agent, but not the owner of the block, and doesn’t know who to call if things go wrong. Our properties will have a single manager, with on-site service. We will have economies of scale that individual buy-to-let investors don’t have. If we can keep the tenants happy we hope they will stay longer and we get lower ‘voids’ [the periods when no rent is paid].”
For M&G this is going back to the future. Its parent group, Prudential, was at one time among the biggest developers of property in Britain. When I researched my first flat, in a 1901-built Edwardian terrace in Dulwich, south London, I found that Prudential was the original builder and owner. It didn’t finally sell the freehold until 1959.
Since then pension providers have put their investments in equities and bonds, eschewing residential developments altogether. Property has to be managed on a day-to-day basis and, more importantly, isn’t liquid – you can’t just sell 10 Acacia Avenue this afternoon in the same way you can instantly shift millions of shares in, say, BP or Glaxo.
But as we enter an era of long retirements, where people want a steady income without the daily ups and downs of the stock market, a professionally managed rental portfolio will look attractive.
Even better, build-to-let means it’s no longer a zero sum game where buy-to-let landlords snatch properties that would otherwise go to first-time buyers. What M&G is doing is adding to what it reckons is a “grotesquely” under-supplied market in the capital.
That grotesque imbalance is why rents have far outpaced earnings. Becky Ely, a 27-year-old private renter in north-west London, started a petition nine months ago calling for rent caps in the city and this week revealed she had already garnered 60,000 signatures. Ed Miliband has also pledged to end “excessive” rent rises if elected.
But here’s the rub. M&G makes it clear that rent controls may be fatal for proper institutional investment in build-to-let. Like many others, I’m sympathetic to rent control – but how do we do it without scaring off the sort of professional investment in new-build that could unglue the UK’s appalling rental market?
