A £500m “co-investment” fund has been launched to enable institutions to invest in the residential property sector, which in turn helps first time and mainstream home buyers currently unable to raise the necessary finance to buy the home they want.
The Investors in Housing Fund will target the residential property sector in
Mill Group says the Fund will provide investors with superior indexed income returns and capital gains from
Co-investment is a new model for home ownership where the buyer acquires a share of between 25% and 50% of the property with the Fund buying the rest. The buyer will pay a continuing investment fee on the part that they do not own and can increase the percentage of the property owned at any time.
David Toplas, CEO of Mill Group, said: “It’s a win for hard pressed buyers and it is a win for institutions, who can now invest in residential property with a superior investment model without the previous associated issues. We project a running yield of 6% pa as part of a projected return of 15% IRR over a five-year period on an ungeared basis after all fees and all at a low risk level.”
Yolande Barnes, head of Savills Research department, who has advised the fund, said: “This has the potential to be a more significant development in private housing finance than the buy-to-let mortgage. The number of mortgaged owner occupiers has been shrinking since the turn of the 21st century because of high costs of housing market entry - which has worsened since the credit crunch.
“People who neither qualify for social housing nor are able to raise the equity for a deposit are the fastest growing housing segment in the
For institutions, the Investors in Housing Fund and its co-investment model removes much of the risk associated with the residential sector: There should be no void periods once the co-investment is arranged and repairs and other running and occupation costs are passed to the occupier in full. There is a mutual interest in improvements to the property and both the owner and Fund investors share capital growth.
David Toplas explained: “We have spent two years fine-tuning the co-investment concept through extensive research in the City and amongst consumers who are looking to buy. We believe we have cracked the barriers to institutional investment in this sector.”
Ian Fletcher, British Property Federation director of policy, said: “Institutional investment could make a significant contribution to the current and likely future shortfall of funding for housing and provide a helping hand for those seeking their first home. If the returns are competitive then we are sure sufficient investment will flow. We therefore welcome this innovative initiative and wish it every success.”
Peter Bolton-King, CEO of the National Association of Estate Agents, commented: “The residential housing market has been ripe for private sector investment given the consistency of the returns it offers. I hope that this represents the start of a positive relationship between institutional investment and home owners.”
Date: 2nd, November, 2009
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