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Midlands: Investors adopt a more 'sophisticated' approach

Funders liken Midlands housing market to London and the South East but prioritise operational efficiency ahead of geographical location.

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Social Housing regional roadshow, Midlands Birmingham welfare reform affordable rent housing

Investors have become more ‘sophisticated’ about their approach to registered providers in the Midlands, senior housing professionals from the region heard.

Housing associations were also told that they would not be ‘penalised’ for diversifying into commercial activities - as long as the strategy is aligned with the group’s financial capacity and the local market conditions.

However, investors set out their overriding preference for lower risk, ‘purer’ social housing activities.

There were also concerns aired around calls for associations to ‘sweat assets’, particularly where groups are paying over £100,000 for each two-bedroom house with an existing use value of £70,000.

The seminar, hosted by Baker Tilly in Birmingham on 2 December 2014, heard from HAs that this is having a detrimental impact on balance sheets and the future of organisations that are also tackling ‘crises’ of youth unemployment and welfare reform dependency.

Investor appetite

Gareth Francis, deputy treasurer at The Housing Finance Corporation, explained that from a fixed income perspective, the location no longer impacts on the investor appetite for social housing.

However, he added that it would become more relevant if a group is pursuing commercial activities such as market sales.

‘I don’t see there being any evidence of anyone staying away because of the Midlands tag,’ he told the audience.

‘I think those days are gone; I think there’s a sophistication as investors have got used to the sector and the market and the opportunities that they have out there,’ he added.

Mr Francis pointed to the examples of capital market transactions completed in 2014 by Cross Keys Homes, Boston Mayflower and BPHA, which ‘all priced within 30 basis points of each other’.

He said investors will focus predominantly on a clear strategy and structure that is easy to understand and has a sound rationale behind it.

Martin Zdravkov, assistant fund manager at Aviva Investors, said the focus is ‘highly operation specific’, but added that ‘we cannot ignore the location’.

From a fixed income perspective, he said ‘the purer the operations you have, in terms of social housing, the more appetite we have’.

He said the Midlands also offers an attractive yield from a real estate perspective.

Click on the PDF below for more on the Midlands event and to view the full regional supplement.


Related Files

Social Housing regional roadshow, the MidlandsPDF, 9.7 MB

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