Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Housebuilder Berkeley Group plans to become a landlord as it seeks better returns in a UK housing market with sky-high rents but sluggish demand for new homes.
The FTSE 100 group, which specialises in urban developments and builds around 10 per cent of London’s new homes, on Wednesday announced a strategy to build and rent out some 4,000 homes over the next decade — an increase of 10 per cent on top of its current construction forecasts.
Rob Perrins, chief executive, said the addition to its business was inspired by the “very unusual circumstance” in the UK housing market where “rents have gone up so much and house prices haven’t moved in the same vein” as buyers are hampered by high interest rates and the need for large deposits.
Institutional investors, including the likes of Blackstone, are targeting growth in a UK rental sector traditionally dominated by small private landlords. The US investment firm has struck two deals in the past year to buy properties from housebuilder Vistry, worth £1.4bn and covering more than 4,500 homes.
Berkeley said it has already sold around 1,000 homes to institutional investors in rental housing over the past three years. The company said that “adopting a more strategic route to this market will drive best value for these assets” by creating a large, professionally managed portfolio with a record of rental income before trying to sell.
Perrins said he would be flexible about when to sell properties or bring in new investors. “I am completely open and agnostic to how long we hold it,” he said. Berkeley previously built and managed a small rental portfolio of around 900 homes from 2011 to 2014.
Aynsley Lammin, analyst at Investec, said the rental strategy “should help absorb completions and deliver shareholder value as the portfolio is established in what is an attractive area of the market”.
The move comes as Berkeley announced its pre-tax profits had fallen 7.7 per cent to £557mn in the year to April, with sales in the private market running about a third lower than the year before — but in line with expectations.
The company boosted its profit guidance for the coming year by 5 per cent, as it looks ahead to interest rate cuts and pro-development policy changes after the UK election in July.
“The sales market is 35 per cent down, but it hasn’t fallen further. We assume the sales market will stay where it is . . . I am more optimistic around consistency and speed in planning,” Perrins said.
