Pension schemes are looking to invest in residential property, after decades of preferring commercial real estate.
Due to the strong returns from rental property, this interest is unsurprising.
The British Property Federation (BPF) reports RPI-adjusted annual returns of 6.1% over the last ten years to the end of 2011. Meanwhile, IPD reveals annual returns of 8.9% for 2012, compared with 3.4% for commercial property.
Additionally, research from Barrie & Hibbert into the Halifax House Price Index, which tracks residential property, found a 0.4% correlation with equities, while volatility is 4.9% against 17.5% for equities.
However, the schemes have found that investment in the sector is not always simple.
Institutions have avoided the rental sector due to the problem of being landlords. Therefore, the best way into the market is through designated funds, but these are scarce.
Residential property is consequently not as accessible as commercial estates.
The BPF has seen an improvement in expertise, understanding and accessibility in residential property, stating that consultants and lawyers are “well versed in the needs of residential investors”1.
Additionally, the Government is supporting the sector with its institutional investment initiatives.
Last year, the Greater Manchester Pension Fund made its residential property allocation, investing with the Government’s Homes and Communities Agency to support house building in the city.
However, without easily accessible funds, it is difficult for consultants to recommend the sector to institutions.