Can landlords who rent new build homes charge a premium?

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Posted in:Property and Construction, Real Estate|April 22, 2016 | Join the mailing list

In the third and final blog of our Private Rented Sector series, our Real Estate team outline the last decade in the rented and buying sector and what effect recent rules will mean for landlords, renters, buyers and investors.

During the downturn in 2008, first time buyers were hit particularly hard and this resulted in two things:

  1. The private rented sector (PRS) grew by a third; and
  2. Small developers went bust whilst large developers paused and hung on until they recovered enough to continue.

New build homes were in demand again by 2010 but in the PRS rather than home ownership. Landlords established they were able to charge a premium in rent for new build homes and this encouraged not only institutional investors but also small investors buying into new developments.

In recent years, Institutional investors have been achieving premiums over and above the new build market. They are able to do this for the following three reasons:

  1. The growing trend for regeneration schemes across the country allows tenants to live in some of the newest neighbourhoods. Institutional investors are the ideal partner to pair up with developers of large-scale new build homes because of their long term view of their investment and access to cash. By tapping into the new neighbourhoods they are able to get rents well in excess of those in the surrounding areas.
  1. As the PRS grows through institutional investors, developers are able to tailor the design of the house to those most popular with tenants i.e. Energy efficiency, double bedrooms etc. The outcome is a better product for tenants.
  1. Institutional investors are able to provide extra added services e.g. an onsite service manager, complete refurbishment between tenancies or greater security of tenure. Whilst this is attractive to domestic tenants it is a massive draw for international tenants visiting the UK for the first time.

In addition, institutional investors who have created a brand for themselves have been able to achieve the highest premiums. However, although tenants are paying higher prices at the moment, if the market continues to grow there will be competition between institutional investors. This will lead to either the need to distinguish themselves through further innovation or alternatively reduce their premiums, neither of which is bad news for tenants.

The new stamp duty rules that came into force this month will hit small landlords the hardest. This is clearly a move by the government to move the PRS towards institutional investors. Whilst the two handover however, the interim effect could be to push rents and premiums higher for new build properties, whilst small landlords stop investing and the level of institutional investors in the market increases. In the medium term there is set to be additional pressure on premiums as small landlords of new build homes compete for tenants with institutional investors offering additional services.

To find out more about the issues raised in this post, or to discuss any queries please call 0161 833 9211
The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by berg or any of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

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