Monday, July 27, 2009

Latest idea to stimulate the beleaguered UK residential property market

Aviva to launch £1bn fund for rental market

Aviva is to launch a £1bn fund which will buy and rent out large numbers of new-build residential properties, with the aim of stimulating the beleaguered residential market.According to FTAdviser's sister paper the Financial Times, the new investment fund will be launched in partnership with CB Richard Ellis, the property consultancy and a major US residential manager.Aviva's plans are intended to answer government calls for greater institutional investment in the suffering residential market, making the venture the first of its kind in the UK. The Financial Times reports the fund will pre-order purpose-built residential blocks of 100 units or more in the south-east to rent out, mainly around major transport hubs and on significant regeneration sites....

Posted by jack c @ 11:35 AM (1782 views)
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12 thoughts on “Latest idea to stimulate the beleaguered UK residential property market

  • Here goes our tax payer’s money again….

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  • Sounds like a sensible idea. These sorts of developments are commonplace in the rest of the world, especially in the USA. Didn’t the UK have some tax or legal obstacles in the way though? Or why has this not been done before?

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  • Undercutting the Buy-To-Let?

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  • An Bearin Bui says:

    If they’re happy to lose out on the capital values for the next decade or so then this is probably a good idea. The UK could use some professionally run rental accommodation that isn’t owned by semi-bankrupt amateurs who can’t afford to even fix the plumbing or pay back tenants’ deposits.

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  • drewster – I guess that during the boom few cared about the considerations that are going into these developments. Speculators jerry-built city-centre apartment blocks to pass onto a greater fool. Govt ministers saw no problem – congratulated each other on their fine stewardship of the economy. Lenders saw no problem. It seems to take a recession to make people think that what they make or build should be something that other people actually want.

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  • Time to sell Aviva then?

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  • Another nail in gordo’s ‘uk is a nation of home owners’ coffin.

    I’m not sure whether to be pleased or upset. Perhaps private wealth is starting to see some potential in property? I can’t help feeling conned.

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  • Two reasons why this wasn’t done before

    First was double taxation of capital gains. The fund would have to pay capital gains tax when they sold a property at a profit. The unit / share holders would also have to pay capital gains when they sold their holding at a profit. REITs now solve this problem.

    Pension funds were not allowed to invest in residential property. Now they can, but only in a REIT that meets certain criteria, which this fund presumably will.

    This isn’t a reason to sell Aviva. Their customers’ money in this fund will be completely separate from Aviva’s own money, and Aviva will charge management fees to the fund. If the fund loses money, it is their customers’ money that is lost, and not Aviva’s money.

    I might consider putting money in such a fund in a few years time when the market does hit bottom, provided the fund isn’t geared. It could be a good way to save up a deposit for a house, as the fund value should track the asset you are planning to buy with your money. At the moment though, I’m betting that house prices have further to fall, and that I’m therefore better of keeping the money in deposit accounts.

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  • They must be purchasing these at fire sale prices from developers too small to bail. I’d always thought it was the cost of administration that had put corporates off getting directly involved in residential letting, so they must be seeing some high yields to offset that, those yields won’t be from higher rents, so they must be from lower costs.

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  • tenyearstogetmymoneyback says:

    When they first announced REITs I thought this is what they would be but the Aviva fund seems to be
    the first of its kind.

    A few years ago it was easier to buy a share in an Oil Rig or Power Station than in residential property,
    where the only option was to buy a whole house. It would have been great to have the oportunity to invest in
    such a fund when I sold my house and became a Toy Boy.

    It will be interesting to see how well the amateur landlords can compete with a professional company
    like Aviva who will presumably have economies of scale and hopefully won’t go to Inside Track to buy
    their properties.

    :- Duncan

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  • jonb,

    Thanks for answering my question!

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  • george monsoon says:

    JonB

    That makes sense.. I might just do that myself. My wife (financial advisor) says it is a good idea, but like you said, not until the prices have bottomed out for certain.

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