By Denise Marray/Gulf Times Correspondent/London
The UK government’s announcement this month of its support for three new garden towns alongside the seven already announced, opens up opportunities for foreign direct investment in the country, with Gulf investors likely to show interest.
The three new towns, alongside 14 new garden villages, have the combined potential to provide almost 200,000 new homes across the country. It is the garden town model, a development of more than 10,000 homes, that is likely to offer the scale to attract investors.
Gulf Times spoke to Andrew Baum, professor of Management Practice with responsibility for the Real Estate Programme at the Said Business School, University of Oxford, about the FDI opportunities.
He explained that the key sources of funding will come from private sources; publicly listed companies such as housebuilders, UK pension funds, British individuals and foreign investors, for example, the US pension fund market, Australian super funds, Chinese and Asian investors, German and Nordic markets and the Middle East.
The government’s input will be nominal with its key role being a facilitator in the planning process.
“The main government contribution is the granting of planning permission for areas that normally would be challenging for obtaining building permissions; land that would normally be heavily protected will be freed up. The government is not expecting to put much money in to the scheme other than a small amount to encourage the application process from the private sector,” he said.
He noted a shift in the government’s stand on home ownership to accommodate the appetite by developers for the rental sector.
“The Conservative Government has typically been in love with the idea of home ownership. It has typically distorted the market in favour of home ownership by tax breaks, stamp duty charges and a variety of instruments. But I think that balance is shifting a bit because there is a strong demand from institutional investors such as Legal & General and Prudential to invest in rental property.
“The government is getting the message that a balanced house to buy and house to rent sector is the right way to go. That is becoming more evident in government policy since former Chancellor of the Exchequer, George Osborne, left his post. I think the government will continue to float home ownership but you will find more encouragement for homes being built for letting as well,” he said.
A good example of the rental model is East Village, a joint venture between Qatari Diar and Delancey and Triathlon Homes with a mix of affordable properties for rent or buy and private rental apartments. Situated on the doorstep of The Queen Elizabeth Olympic Park with speedy links to Canary Wharf, the City and the West End, the new neighbourhood will initially deliver 2,818 new homes. Speaking of the proposed new towns Baum noted: “If someone can control several thousand homes in one estate then you are talking about an investment for the long term which is well worth serious consideration by an overseas investor. Getting a contiguous estate of developed property is pretty hard to find in the UK and to have the opportunity to build that from scratch would likely be of interest.”
Asked whether investments in commercial property are preferable to residential he observed: “There is no major commercial advantage in investing in office space over residential. I think the clever, professional investors in the UK are now as interested in residential property for letting as they are in office investment. There is no special advantage to owning offices if office leases are shortening and the demographics of the country support significant investment in residential property to let. I can’t see any reason why a serious investor shouldn’t be as interested in the residential rent sector as in the office sector.”
He expects to see some negative impact on the commercial sector in the City due to Brexit.
“The uncertainty around Brexit is inevitably going to slow down appetite for London City commercial/office investment. The two positives moderating that impact are the reduced value of the pound and the potential reduced supply of new office schemes in London which might mean existing office development will perform reasonably well due to lack of competition. But these are slightly thin arguments,” he said.
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