It’s been clear for months that major insurers and pension funds are about to re-enter the residential property market but there’s still something deeply symbolic about the news that Aviva is to set up a £1bn fund to do just that.
Companies like Prudential and Norwich Union (as Aviva was called before its vacuous rebranding) were major private landlords but began to run down their stock in the 1950s amid concern about rent control and new rights for tenants. Nothing, be it the scrapping of fair rent legislation, the 1988 Housing Act and assured shorthold tenancies or various tax wheezes, has persuaded them back - until the housing market crash, the housebuilding slump and he Homes and Communities Agency’s private rented initiative.
Aviva, which is in a consortium with surveyor CB Richard Ellis and an American property firm, is the first to break cover. However, the British Property Federation (BPF) said when the HCA initiative was launched that eight organisations including two institutions, two investors and a big name pension funds were in discussions about it.
That initiative aside, the state of the housing market must also be a major driver of the institutional interest. As Nick Jopling of CB Richard Ellis explained in Inside Housing in May, one key issue is that institutions want to invest in homes in the same way they do in offices - buying up whole blocks. During the boom, blocks were sold off piecemeal to buy-to-let investors (who would presumably pay higher prices) but the bust has killed off that market and housebuilders will be more prepared to do bulk business.
And by coincidence, on the same day as news of the Aviva plan emerged, CB Richard Ellis published a survey forecasting that the housing market may have reached the bottom of the trough, which makes now seem like a good time to invest.
Still outstanding is the BPF’s complaint that current rules on stamp duty create a perverse disincentive to large-scale investment. Changes that would have allowed investors to pay the duty at a marginal, per unit basis were dropped from the Budget at the last minute.
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