If the government wants to change the nature of the private rental market, it needs to create the incentivesby Andy Davis / December 14, 2016 / Leave a comment
Published in January 2017 issue of Prospect Magazine
One of the biggest trends among institutional investors in recent years has been their increasing appetite for “real assets,” meaning investments such as offices, shops, warehouses and distribution centres, as well as infrastructure (roads, hospitals, schools, airports, power grids, and so on) and to a much lesser extent residential property.
The explanation is simple. The income institutions can earn from traditional investments such as corporate and government bonds has dwindled almost to nothing, and most bonds are now so expensive that there is little prospect of prices going up much. Investments such as commercial property and infrastructure, on the other hand, have relatively strong yields that can be sustained (thanks to rent increases, for example) and they retain some scope for capital gains, making them more appetising than another helping of over-priced bonds.
If this is all starting to sound a bit like the buy-to-let market, that is not a coincidence. The “real assets” that institutional investors and their highly paid consultants like to talk about, and the terraced houses and two-bed flats that private investors have been snapping up, have much in common. The biggest difference I can see is that the government appears keen to persuade institutions to pour more money in infrastructure, and equally keen to dissuade private individuals from investing in buy-to-let property. First the Treasury cut the amount of mortgage interest buy-to-let owners can write off against rental profits, then it slapped an extra 3 per cent stamp duty on purchases. Finally, in November the mortgage affordability test for buy-to-let investors with four or more properties was toughened up.